Warning! Using a Demo Account Puts You at Risk

Demo accounts are a formidable tool for completing one's training path, both for beginners and for experts who want to test strategies and new approaches in a safe environment. In this article, however, we delve into the topic from the perspective of the novice trader who has yet to make their debut in the market. In fact, for this category of individuals, the demo account not only provides a whole series of advantages but also exposes them to a very serious risk, which can nevertheless be circumvented. The important thing is to know how to do it. We will provide this important indication in the course of the article.

A problem inherent to the training path

Before discussing the main flaw of demo accounts (of each demo account), it's important to talk about its biggest advantage, namely the ability to solve a problem inherent to the training path, a distortion that all aspiring traders are forced to undergo when studying to become traders in the true sense of the word. A dynamic that can be costly, literally, and can pave the way for a dramatic and rapid loss of capital. This dynamic concerns the need to practice and the apparent impossibility of doing so in a safe environment. Theory is an important element; knowing how markets function, the specifics of various asset classes, the dynamics that regulate investment activity, and the tools for analysis and operations is undoubtedly fundamental. However, doing "real" trading could prove to be quite different from what was learned in books, specialized blogs, webinars, or video courses. Basically, practice should be done after making a debut in the market, with all that entails in terms of risk. It's a brutal "apprenticeship" that takes place while trading, as the trader is forced to bear the classic trading risk while still in a "green" phase of their career. The main objective (but not the only one) of the demo account is to overcome this dynamic. We will discuss this in more depth in the next paragraph.

What is a Demo Account?

The term "demo account" could be misleading. In fact, the concept of a demo might suggest an incomplete product that aims to show something of the original, perhaps from a promotional perspective. In reality, a demo account resembles a real account in every way. It allows you to perform all the actions connected to the real account. All except one: investing real money. So, the demo account is a full-fledged account but... Simulated. The capital is replaced by fictitious money, certainly expressed in dollars or euros but "fake." Those who trade with a demo account are dealing with the real market, using real analysis tools, but when they invest, they do so "pretend." This approach, this particular dynamic, might raise eyebrows, but it is the plastic representation of the benefit granted by demo accounts. Thanks to demo accounts, traders can practice in a real situation but in extreme safety. In a certain sense, they can cut their teeth without risking breaking them. It's no small advantage, given that the alternative is to practice in a situation that is not only real but also risky. Demo accounts are generally uniform in functionality and degree of realism compared to their original counterparts. However, they differ in the way they are provided. Some demo accounts are accessible even before opening a real account, thus before making the classic initial deposit. Others, on the other hand, are tied to the opening of the aforementioned account. Some demo accounts are time-based, meaning they can be used for a predetermined number of days, after which the trader must switch to the real account. Others, on the other hand, have no such constraints.

The Biggest Risk of Demo Accounts

So far, it seems that the demo account is a really useful tool, capable of solving a problem with potentially dramatic implications. Indeed, this is precisely the case: thanks to this particular product, the budding or aspiring trader truly benefits, truly managing to complete their training path without risks. However, not all that glitters is gold, or at least not one hundred percent gold. The demo account, in fact, is not a perfect tool, and it has its flaws. Indeed, it has one, and it's a heavy one. However, it is possible to circumvent it. What is the main flaw of the demo account? Well, by its very nature, it cannot teach anything about an important issue, namely emotional management. Those who trade, regardless of their level of experience, are gripped by a flow of emotions that can make them lose lucidity if they are not able to control them. As they progress in their careers, traders learn to manage emotions, but in the beginning, it is very difficult. The demo account does not offer a significant contribution from this point of view. And the reason is simple: if the investment is fictitious, if there is no risk of losing capital, the emotional pressure is lower. And it could not be otherwise: the absence of risk is structural in the demo account. If it were not so, it would not be a demo account.

How to Overcome the Flaws of Demo Accounts

In reality, this flaw of the demo account, this inability to "teach" emotion management, can be circumvented. Or, better yet, it is possible to limit its effects, to the point of reducing the risk of drawing a disadvantage. How to do it? Again, it's rather simple, obviously in theory: it's enough to learn "elsewhere" how to manage emotions. We are in the field of psychology, cognitive training, mental reprogramming. A path that can be taken alone, but which is best done with the help of an expert. Also because it projects its beneficial effects not only in trading but also in life in general. The goal should be to learn to manage stress in particular, to manage feelings of fear, but also of euphoria (which in trading can be equally harmful). In short, it's a matter of taking a path within the larger path of preparing for trading. Difficult, but possible.