Learning Trading with a Demo Account: Tips for Smart Usage

Learning to trade with a demo account? It's not a far-fetched idea. In fact, many aspiring traders place the demo account at the center of their training path. Obviously, it shouldn't be the only tool, and no one considers it in such an exclusive way, but it certainly represents an important stage. Provided, however, that this important tool is used in the right way, valuing the positive elements and being aware of its limitations. In the following article, we will offer some advice on learning to trade with a demo account. An operation that is only apparently simple but involves some pitfalls and certain risks. Many of these, then, are "hidden", meaning they are not obvious - at least for a beginner - and are destined to be understood only once they have caused damage.

The usefulness of the Demo Account

Is the demo account useful? Those who don't know the tool and, from the depths of their unpreparedness, would like to learn trading ask themselves this. The answer is yes, in any case. Of course, the demo account has its limitations, and often exposes one to risks that, while manageable, can be dangerous. However, it fulfills a fundamental function, which all aspiring traders should try to exploit for their exclusive advantage. All this, we repeat, even at the cost of enduring some flaws and exposing oneself to some risk (which is not economic, at least not in the short term). The main function that the demo account fulfills is the following: allowing practice without taking risks. Or, if you prefer, cutting one's teeth... Without breaking them. It's a really great advantage for beginners. If there were no demo accounts, aspiring traders would have to practice directly with a real account, therefore with the equally real risk of losing money. A probable eventuality, given the inexperience. All this thanks to a particular, a detail that separates the demo account from the real account. When a user trades with a demo account, they operate in the real market, yes, but with fake money. Therefore, in fact, they don't invest. More prosaically, they simulate. This is precisely the definition of a demo account: trading simulator. And there's no denying it: demo accounts are excellent trading simulators. Also because, in general, they are quite complete and equipped with all the functions of real accounts, including the ability to use technical analysis tools such as oscillators and indicators. Demo accounts now represent an old acquaintance in the world of trading. Almost all brokers provide one, certainly with often different rules and usage policies. The most popular methods are: Demo account with activation constraint. In this case, access is tied to the opening of a real account, and therefore an initial deposit. Demo account with time constraint. In this case, the demo, while not necessarily tied to the opening of a real account, has a very specific expiration (usually a couple of weeks). Free demo account. In this case, the demo account has no limits or constraints on use. Unfortunately, this is the rarest type. To all this must be added a detail: demo accounts are not designed exclusively for beginners and aspiring traders. In fact, they can be a useful tool for those who have long passed the training period. Even trading experts can benefit from the demo account. The reason is simple: it allows you to safely test, without risking losing anything, analysis tools, operating systems, software, and strategies.

The problem with the Demo Account

As already anticipated, the demo account has more than one limitation, and it has nothing to do with the expiration or activation constraints. It's a structural limitation, which derives from the very concept of "simulation" and which unfortunately cannot be remedied. The reference is to the well-known, unequivocal, and unsolvable inability to integrate the emotional component. The discourse is very simple: if the demo account involves the use of fake money, it means that the trader operates without fear of losing their capital, therefore without stress. Now, stress and the fear of losing capital are always present when doing real trading. It follows that the beginner who practices with the demo learns nothing from this point of view. It's not a minor detail, given the impact on the results and in general on the trading activity that emotional pressure exerts. Based on this, the trader is simply destined to arrive at least partially unprepared for the appointment with the market. No matter how well they may have studied, no matter how much attention they may have paid in using the demo account, they will start real trading without having learned to manage emotions. Unfortunately, this is one of the most important skills for those who trade, perhaps the only one that always and in any case allows maintaining lucidity, keeping the bar straight. Now, it's evident: the total lack of the emotional component plays a (negative) role only if the demo account is used by those who have yet to learn trading. Experts, or at least full-fledged traders, know well the role of emotions and from this point of view they certainly don't need a demo account. Therefore, to test strategies, indicators, etc. the demo account is always a valuable and very useful tool.

How to use the Demo Account

As already specified, if you are an experienced trader the problem doesn't arise. Simply use the demo as if it were a real account and carry out all the necessary tests and trials. It's a different and much more complicated discussion for aspiring traders. For them, the demo, despite the limitation just described, still constitutes a fundamental and essential tool, an indispensable stage of the training path. This category of users, however, should be careful not to transform the demo account into a double-edged sword. The only way to avoid this risk is to consider the demo account for what it is: an excellent tool for practicing, yes, but almost exclusively from a technical point of view. If you don't operate with this conviction, you risk misunderstanding the nature of trading, and taking the results produced in the demo as good and replicable. Let's be clear, sometimes it's really like that, but in the vast majority of cases you need to look at the results gross of the emotional component, which as we have already explained is completely missing in the demos. It would be dangerous to start trading thinking you're good but without actually being so, just because some demo trades proved you right. Therefore, yes to demo accounts if you have to learn trading, as long as they are handled with care!