Trade Insider
by Kate Wilson on February 16, 2021

Why is demo account trading dangerous?

Forex trading has become a very popular and very engaging activity for the past several years. Annually thousands of new traders appear on the market. The Forex industry has shown its potential to the clients as well as to the rest of the trading industry. The Forex is increasing time by time, due to the very demanded and very interesting nature of the market. Once the main activity, now has become the major phenomenon.

Throughout this time, Forex trading has turned into the method of earning additional profits, if you are ready to work hard. As time passes we see even more traders who are involved in the activity. With the technologies evolving at a rapid speed, more and more people are willing to try their luck and trading skills in Forex, in order to rock the Forex market and guarantee the additional income benefit.

Forex is definitely very popular and one of the best sources of income, if traded correctly. Though on the other side, Forex is not an easy activity and requires a lot of hard work and a lot of attention. There are people who are learning some of the basics of Forex trading for a while and are still only at the very beginning of the route. There are some other ways to learn Forex trading other than reading the guidelines and economic books.

One of the best opportunities to learn trading with Forex is through a demo account. The first step you need to do is find the relevant brokerage firm, which shall offer the Forex demo account options. Once you find this kind of broker, create the demo account and start trading without actually spending your own money. While it is definitely an excellent option, it definitely comes with some drawbacks and risks. In order to understand the risks, you should first know what a demo trading account is.

Demo account

Whenever you decide to start trading Forex, make sure to learn about how a Forex trading platform works – at least with very brief information. Do not engage and dive into the Forex completely without knowing a thing. The demo account is an additional assistant tool to quickly adapt to trading. The demo account is the virtual account, which simulates the trading on the exchange. Though the big difference between the real and demo account is the virtual and real money.

Demo accounts are mostly used by newcomers. The beginners are keen on learning through virtual and simulated situations, without spending money, in order to gain some skills in the stock, foreign exchange, or commodity markets. Though as far as it sounds very appealing, it is sometimes used by experienced traders as well.

Once the demo account is used by the experienced traders, they have plenty of tries and plenty of time to adjust and customize their own strategies for trading in certain markets. This might be beneficial for the traders themselves, but overall negatively affects the markets and the newcomers, as it becomes more liquid. In this case, the experienced traders do not even have to trade their own money, but instead, set limits on the virtual assets.

Emotions

One of the biggest differences between the demo and the real account is the emotions. Regardless of the number of virtual assets, the fact itself that the money is not real, does not awake any real emotions. The furthest one can go is the next try. With no money engaged in trading, there is no true emotion, nor there is any engagement on the emotional level. Consequently, there is less chance of quicker success, and real feelings.

Everything seems to be simple and clear. However, trading on a demo account is fraught with many pitfalls. When we talk about the disadvantages of a demo account, first of all, these are dull emotions. Acquiring the skills of working on a demo account, a beginner does not experience such strong emotions as a professional trader experiences when trading real money. This is one of the main arguments that can be seen by people who have tried to learn from it in the past.

This is why many traders prefer accepting bonuses from the brokers. This means that despite having a bonus fund, you still are capable of creating the risky environment which is always present during trading. With the bonus fund, you still have more room for the mistake, though even during the mistake you still lose money, which is partially yours. For a trader, it’s just some kind of simulator. He uses it to train himself by opening and closing trades without risking anything. There is simply an interest in something new and the excitement of making virtual profits. However, the higher the degree of risk, the greater the reward for it, and in this case, the level of risk is zero and, accordingly, the reward is equal to zero.

The first piece of advice which shall always come to your direction is not to trade with the demo account for too long. This can get addictive and in the end, you might be enjoying the gameplay of opening and closing more than the desire and the ability to switch to the realistic throughout the more risky activity. After trading with a demo account for too long the traders have difficulty switching to the real account, as it is hard to get away psychologically.

Trading with the real account causes a lot of emotions. You might get nervous, you can be angry, upset, and even furious. Though time by time you learn how to control not only the trading process but also your emotions. Yet, with the demo account, you are unable to control yourself fully, as you are not even 100% engaged in the activity.

In addition, the trader must know technical and fundamental analysis. And he must also have nerves of steel in order to successfully trade on a real account. At the same time, the ratio of knowledge and the ability to control oneself should be 15% to 85%, respectively.

Safety

Whenever you are trading with the demo account, you should strictly set the limits for the money you are willing to risk during trading. It is also worth considering your emotional range and correlating it with the value of the amount. Never trade too much, and time by time you will also understand how much is too much for you. Usually, it is the amount of money, which is hard for you to swallow in case you lose it.

Thus, you as a trader should decide on the amount of money, which is comfortable for you to trade and safe for you to trade on a psychological level. Determine for yourself an acceptable and stable level of the risk. Only the trader himself can determine his psychological state in a particular situation. The secret of successful trading lies in a person’s self-control and ability to control himself in any non-standard situation. These skills will reduce your risk of capital.

Never mess up with the virtual account, always know the difference between the virtual and the real account. It is true that there is no limit on the time frame of using the demo account, but it is better for you to set your own limit. Know when you want to trade with virtual funds. It will also be easier for you to prepare to trade with the real money sooner.

One more thing to consider is finding the competing trader in virtual trading. This will emotionally revitalize the learning process. It will teach you to be careful on the way and to analyze every situation and every event, which can potentially affect your trading experience and your positions. In the end, trading almost fully depends on your ability to cope with oneself, especially in difficult and risky situations.

By Kate Wilson

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