The Biggest Misconception Behind Demo Accounts

The demo account is a useful tool and, fortunately, increasingly used by traders. However, it should not be overvalued, also because it is created with a very specific purpose, which has little to do with the interests of traders. To a certain extent, these are pursued but... As a side effect. We discuss it here, first providing an overview of demo accounts and illustrating their usefulness, and then revealing the "secret" behind them. A secret that, if known, allows you to use them to the best, without excesses and without placing false hopes in them.

What are demo accounts

Demo accounts are "simulative" accounts. Their purpose is to simulate trading activity. They operate in the real market, as if they were live. However, the money made available is fake, and by the way, we are talking about an average of 100,000 euros/dollars. Furthermore, orders are not actually issued. Demo accounts therefore allow you to simulate trading activity without risks, that is, without putting real capital at stake. For this reason, they are considered as training tools. Nevertheless, they are used by experienced traders to test new strategies, new assets, and new platforms in absolute freedom.

The usefulness of the demo account

In light of this, the usefulness of demo accounts is intuited. A usefulness that is incontrovertible, as evidenced by the experience of many budding traders. In a sense, the demo account is functional to the completion of the training path. A student may have carefully followed a course, may have devoured manual after manual, but if he does not have several practice sessions, he always risks arriving unprepared for the appointment with the market. Now, the only way to practice would be to invest. A very risky step, as it engages one's own capital in a phase in which skills are not fully formed. With their simulative activity, demo accounts overcome this limit. In simple words, they allow you to practice without risks. Is it all roses and flowers? Obviously not, also because demo accounts are structurally deficient in administering an important skill: resistance to psychological pressure. This derives precisely from the awareness of being able to lose money, an awareness that does not concern - for obvious reasons - the simulative activity. It is also good to give an account of the usefulness that the demo account also expresses for already trained traders. As already mentioned, they can use the demo account to test changes to their strategy or their approach to trading. Not infrequently, demo accounts are used to try new assets, new techniques, etc.

The "secret" behind demo accounts

It is good not to overestimate demo accounts primarily for the inability to "teach" the management of psychology. Secondly, for the dynamics behind their formation. It should not be forgotten, in fact, that demo accounts are essentially marketing tools. Their real purpose is to attract new users to themselves. They therefore represent a sort of product trial, useful to persuade to the "final" purchase, which coincides with the opening of the real account. A product trial aimed at budding traders, who can thus experience the "wonders" of trading firsthand. A product trial also aimed at experienced traders, who can evaluate, perhaps more rationally, the functionality of the broker and its possible proprietary platform. It is no coincidence that the administration of demo accounts is subject to important constraints. These are temporal, when a deadline is set. These can be economic, if - as often happens - the opening of the demo account is tied to the opening of the real account and consequent initial deposit. Knowing this dynamic allows you to use demo accounts for what they are: a tool that, according to the evergreen principles of do ut des, does good to both counterparties. Precisely a tool, not a disinterested gift.