The Ultimate Guide to Demo Accounts
You’ve probably heard a lot about demo accounts, what they’re used for and why they are useful to start with. But, that’s the basics. In this article we’ll be exploring some of the many ways you can use them to your benefit and how you should prepare yourself before taking the step of going live.
What is a demo account?
Quite simply, a demo account is a type of trading account that can be used to practice trading. It’s a pseudo trading environment, where you can experience trading without any risk to your capital. You are given the same conditions as those you would receive in a live trading environment but without the risk that normally accompanies it. Most brokers will offer demo accounts to their traders.
How do I create a demo account?
Creating your demo account is really straightforward. You register for a demo account with your broker of choice, receive your login details by email and then just login to the MT4 platform! From there you’re ready to start testing yourself, the platform and your strategy. It’s as simple as that.
How do I create a demo account on MetaTrader 4?
1. Download the MetaTrader 4 Platform by clicking here.
2. Open the MT4 application on your PC.
3. On the MT4 platform, select ‘File’ on the main menu. A drop-down menu will appear, and you simply select ‘Open an Account’.
4. On the ‘Open an Account’ menu you will be prompted to select an account type. Choose ‘New demo account’ and click next. From here you’ll be required to fill in your details, tick the box agreeing to subscribe to newsletters and then select next.
5. You’ll then be asked to select the correct trading server. Choose the PrimusGlobal-Practice server and press next.
6. Finally, you’ll be given your account credentials showing:
→ Name
→ Account Type
→ Deposit
→ Server
→ Login
→ Password
→ Investor
Simply select ‘Finish’ and your demo account is ready to go!
Demo accounts are designed to make sure that you’re able to test out the platform and its features, the broker’s execution, your trading strategy and basically all of the things that are important when you start trading for real.
Most brokers (reputable ones anyway) will allow you to create a demo account to test the broker’s trading conditions and yourself effectively. However, as you probably already know, there are a number of different platforms available out there.
One of the most common is the MT4, which we briefly touched on in our previous article. Now, although you’ll probably see a lot of different interfaces and environments, one of the key things to remember is that at the basic level, a lot of the functionality is the same.
You’ll see prices (both bid and ask), charts, technical analysis tools and your trading history as the bare minimum. The level of functionality will always be down to the individual trader’s preferences, but the MT4 tends to have features that accommodate most traders and strategies.
When you start with a demo trading account, it’s a good idea to start with a realistic account balance. Some brokers will even let you demo trade with unlimited funds but, unless you’re going to invest that amount to begin with, it’s probably wise to start with a conservative amount. The transition into a live account will be much easier later if you start with the amount you intend to invest in the first place.
So, what’s next?
Well, navigating the platform is a good place to start. As you start to check out your demo account you should try and familiarise yourself with the following few things on the list below:
· Opening and closing a trade
· Opening different charts from the Market Watch
· Showing all of the instruments and editing the appearance of the Market Watch
· Changing & understanding time-frames
· Altering chart appearance
· Applying indicators
· Accessing your account history, exposure & trades
Try not to be intimidated by the lengthy list above! In the coming weeks we’ll be going into way more detail about how to do all of the above, FXPRIMUS has you covered.
Now, you’ve probably heard the saying ‘practice makes perfect’. Well, it’s totally appropriate here too. A common recommendation is that new traders should place 50 to 75 trades on their demo account before taking the next step into a live environment. However you choose to approach your trading practice, make sure that you feel totally comfortable with all of the facets of trading before you go live.
Another key factor to test when using your account is how you intend to incorporate trading into your daily routine. Make sure that you can fit trading in around your day job, your family or other obligations that you may have as it can take a fair amount of time to get your scheduling just right!
What are the benefits of using a demo account?
Well… where to start?
· Firstly, it’s totally free! In most cases you just submit your information, like your email and name, then you’re ready to begin with your free demo trading account. Some brokers will ask you to submit documents as part of their ‘Know Your Client’ (KYC) procedures though.
· You’re able to learn to trade without having any risk to your capital! Traders can learn about opening and closing trades, how to use the charts and apply indicators without the risk that you experience in a live environment.
· Further to the learning experience, you’re able to hone your trading skills using your demo account. Traders should practice the skill of calculating entry and exit points and become familiar with lot size and its effects on profitability.
· It’s also a benefit that while doing all of this, your awareness of the characteristics of the forex market heightens greatly! You are able to learn the development of price action and understand the risks and benefits of leverage.
· Demo accounts aren’t just for new traders though. They come in handy for more seasoned traders who are looking to develop and improve their existing strategies or refocus after going through a losing streak.
· You’re even able to test out Expert Advisors that are still in the development process, allowing you to see how they would function when activated! Literally, the possibilities are endless.
· Aside from testing yourself, demo accounts allow traders to test out their broker. Using a demo account enables you to get an idea of the spreads available and the execution speed offered to see if the conditions are compatible with your strategy.
· Demo trading is also a great opportunity to test out the support available from your broker. If a broker is unable to facilitate what you need when you’re in a demo environment, you’ll know that you won’t get what you need when you move to a live environment!
What are the disadvantages of using a demo account?
It’s always prudent to ensure that the benefits outweigh the costs when making a decision. So, we’re also going in deep with the disadvantages of demo trading.
· In a demo environment, as you’re probably aware, the lack of risk to your capital may alter your psychological approach to trading. Without the fear of losing your actual funds you may become more prone to risk taking, grow complacent or even develop bad trading habits.
· You may also have difficulty truly judging how you feel about losing your actual funds. In time, this would perhaps create lower awareness of your true risk appetite.
· It’s also important to mention that while a demo environment is a highly accurate representation of a live trading environment, it is a simulation and there will be some unavoidable differences. In a demo environment your trade will always be executed. However, in a live environment there may be instances of low liquidity (like during a huge economic data release) where you may experience a delay, requotes, slippage or even out-of-hours price movements. Always try to remember this so you aren’t caught off-guard when moving into a live environment.
· Within a demo environment, trades will not be closed if you do not have sufficient funds in your account to cover margin and losses. This will however happen on a live account, so make sure you develop your understanding of risk management before taking the step of going live.
Do demo accounts expire?
As demo accounts are used to allow you to learn and experience what a live environment will be like, they usually expire. At FXPRIMUS our demo accounts are active for a period of a month, however, if you don’t feel ready to progress into a live environment, you can always open another demo account to continue learning!
Can I have multiple demo accounts?
You can and should always have multiple demo accounts! We recommend trying out a number of different demo accounts to see which broker suits you, and your strategy!
Are demo accounts limited in any way?
In an effort to provide a trading environment as close as possible to a live environment, most brokers will try to ensure that there are very few limitations to trading with your demo account. However, limitations could occur in a number of different instances.
Spreads may differ depending on the type of account that you choose when you decide to move into a live environment. A great example of this would be, if you decide to go for an ECN account. The spreads you see while demo trading may actually be higher than those you would see on a live ECN account.
Some brokers may not provide their whole product portfolio on a demo account, e.g. Cryptos may not always appear on a demo account and you’d have to speak to your account manager to discuss access to those instruments.
Demo accounts may also have limitations placed on them with regards to the maximum amount of trades that you can open or the maximum volume that you can trade.
There is a good reason for these constraints though. Brokers host their client accounts on a number of servers, one of those servers being a demo server. If a broker did not enforce an expiry date, limitation on the maximum volume traded or the maximum number of trades, then their demo server would fill up very quickly!
What’s the difference between a demo and a live account?
There are a few differences between a demo and a live account, actually. First of all, with a demo account your trades will always be accepted. As we discussed before, in a live environment, liquidity constraints may create instances of slippage (positive and negative), requotes or rejected trades.
Also note that while using a demo trading account your trades may not be closed automatically to cover your margin or losses. It’s crucial to account for this difference in a live environment as trades will be closed if you incur losses or don’t have an adequate margin.
The psychological factors that affect your trading will also be different, meaning that you would trade differently using a demo account compared to the way you trade in a live environment.
You may also see a limited product portfolio using a demo account, as brokers won’t always include all of the instruments that they offer on a demo account.
So, what now?
As the new year has begun, most of you will be trying to keep to your new year’s resolutions. Why not make 2019 the year that you enhance and hone your trading skills? Read our guide again and again, spend as much time on your demo account as possible and ask questions whenever you need to know more! Get in touch with our amazing support team by email, contact us page or through Facebook should you need any more information about demo trading.
