Should You Trade a Demo or Live Account?

There are several distinct differences between trading a demo account and trading a live account. Most people test the waters with a demo account. They typically believe that when they open a live account their results will be the same. Of course, the results are almost never the same.

First off, demo accounts are very useful for certain purposes. If you are brand new to FX trading, it’s my opinion that you should not be trading a live account. Demo accounts are great for learning how the trading process works, (spreads, slippage, overall execution) learning how different brokers operate, and gaining general market knowledge. Demo accounts are also great if you want to test strategies, practice scalping, etc. Also, if you are trading a real money account, and get into a slump, it may be beneficial to temporarily switch back to a demo account.

That being said, there are certain things you can only learn by trading a live account. When you begin trading live I recommend only trading with a small amount of capital. If you are trading very small positions, you will not be able to seriously damage your total trading equity - but you will start learning the mistakes commonly made when trading real money. Even though you’re not risking a lot of capital, our brains just functions differently then when trading a demo account.
The emotions involved with trading real money are significantly stronger than trading with a demo. With real money you will be tempted to commit a number of trading sins: moving stop losses, exiting a position prematurely, and entering a trade simply to win back money after a loss. Trading real money also opens the door to: fear of losing money, greed, and dealing with our need to win (validates our sense of superiority) However, the experience of trading with real money is very unique, and you can’t learn to control the emotions associated with trading real money by trading a demo account.

When you begin trading with real money it is critical to note the mistakes you make that you weren’t making while trading on the demo account. Write the mistakes down. Don’t skip this important step‼ It's typical of bad traders to either be too lazy, or to think that they are smart enough to remember them. Writing your mistakes down is a great habit to get into - and a big part of trading is getting rid of your bad habits and adopting good ones. After you have figured out your mistakes and written them down, find a solution and write that down. This process helps you develop trading rules that will help you become more disciplined and protect you from your emotions.

Some of the best traits you can develop as a trader are strong senses of self awareness and self evaluation.


BeamFX is an Guaranteed Introducing Broker of ILQ. Join us in our free live trade room Monday - Friday at 9:00 A.M. EST