Forex demo vs live account

However, when a person moves to live trading after the demo account, there are several changes they should anticipate. Key Takeaways Demo accounts can provide some benefit to new traders because they allow the trader to become familiar with trading software and get a sense of how the market works. However, traders should be prepared that simulated results rarely correlate to actual trading results.

Traders must be aware that execution, capital, and emotions can be different when trading real money as opposed to fake money in a simulation. Traders can make demos more realistic by excluding orders that are unlikely to have been filled in the real market, factoring in slippage, keeping the demo account capital similar to the amount that will actually be traded, and making demo losses and profits real by incorporating external stimulus.

Many traders trade profitably in a demo account, but when they move to live trading with their own money, a succession of losses may occur one after the other. Why does this happen? Here are some explanations. Demo Accounts Provide Better Execution Demo accounts will normally fill a market order at the price showing on the screen. When an order is placed in the live market, it is subject to slippage. Therefore, it is quite common for market orders to not be filled at the price expected—or in the case of large orders, for at least a portion of the position to be acquired at a different price than is expected.

Demo accounts will also generally give early fills when bidding or offering. Bids and offers in the live market are also subject to a queue. Bidding at the current bid price does not guarantee a fill, as only a few shares or contracts may be filled at that price. In a demo account, it is hard to know which orders would actually have been executed in the live market. This is true of entries and exits, and thus results attained from a demo account are highly subjective at best, and completely inaccurate at worst.

Demo Accounts Often Provide More Capital Demo software generally allows the trader to choose the amount of capital they would like to simulate trading with. The amounts vary, but they are often very large and beyond the actual capital the trader has for trading their own account. Simulated trading with a greater amount of capital than will actually be realistically traded can provide an unrealistic safety net for a trader.

More capital allows for small losses to be more easily recouped—a loss on a smaller account is harder to recoup. It is important to note that even-share lots — shares—in more expensive instruments which were easy to afford in the high-capital demo account may be beyond the capacity of the trader in a live account. And the instruments and volume traded in the simulator may not be able to be replicated with real capital.

For example, a trader may be able to trade several lots of Alphabet Inc. But unless they have similar capital for live trading, they may be unable to trade those higher-priced instruments at all. These are all feelings that the trader will experience with real money—but not so much with pretend funds. This is one of the most jarring differences between simulated and live trading. Fear of losing one's own capital can wreak havoc on a proven trading system and prevent the trader from implementing it properly.

Greed or hoping a losing position will come back to profitability can have the same effect, keeping the trader in a trade long after it should have been exited. When real money is on the line—money that can have a potential material impact or is perceived to have a potential impact —it is far different from trading a demo account where success or failure has no material impact on the person's life.

Demo trading does have some benefits because it gives new traders a general idea of how the market and a company's software works. This is just another step in becoming a successful trader. If it was easy, everyone could do it, and of course, that is not the case. Only those who persevere through the adversity get to become profitable day traders.

Take some comfort in knowing that every successful trader who came before you went through a similar transition phase, and while it was difficult, they made it through. Market Conditions Change The transition from demo to live trading becomes even more difficult if the demo trading period was relatively brief. Market conditions constantly change, so only spending a month or two in a demo account means the trader isn't likely prepared to handle the various conditions the markets can throw at them.

Consider the trader who's trading a demo account during a very volatile period. They get used to the big moves and begin to expect them. Their strategy is built around capturing big price swings. The strategy performs well in the demo account, in the volatile conditions, so the trader opens a live account. Volatility is dropping, but the trader continues to assume every trade will result in a big price swing.

Those moves never come, and the trader's account is whittled away by losses. The trader failed to adapt. The market is showing a side of itself the trader isn't prepared for. The same situation could happen to a trader who demo trades in slow market conditions, but when they open their live account conditions are volatile.

Since the trader hasn't practiced in this environment, they are unlikely to repeat their demo trading success in the live market. If you're struggling after going live, consider if you've prepared yourself for all types of market conditions. Day traders need to trade—and know when not to trade based on their trading plan —in trending markets, sideways markets, whip-sawing markets, volatile markets, and slow moving markets.

If you don't know how to trade or when you shouldn't trade in all these conditions, then live trading should be put on hold until you do. The Psychological Element There's one major difference between demo trading and live trading: fear. Anxiety or fear when trading changes how we view the market. In the demo account, you likely took every trading signal you could.

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