The debate of demo trading versus trading on a live funded account is swamped with opinions but what are the facts? Lets look at the positives and negatives for each and then we can make a conclusive decision on how the accounts should be used.
When you trade for the first time or if you are a novice trader and are unsure of your understanding of the market, then it is mandatory that a demo account is opened and used. It is important to familiarise yourself with the functionality of the account and how to use the interface for trade execution. Doing so will ensure that any mishaps or fumbles do not cause any actual losses. It is important to mention that even when you are a wizard when using your trade station, the demo account is a valuable tool even for a seasoned trader. It is a great place to test new strategies, implement them in almost identical conditions and possibly acquire career saving results. Though when trading with the demo account there is a huge drawback. As the trades are executed without the obvious “real money” factor, the psychological aspect of trading in entirely missing.
Often deemed as the most difficult skill to master when trading, controlling your emotions and trade management are closely tied to the success of a trader. When one trades a demo account the pressure of the size of the trade, the trade result and consequences of the result are almost meaningless. This can not be said when trading the real account. The trader must come to terms with the pressure of a loss and also the size of the loss. The domino effect the trade may have on the trade selection process can also be argued to be different in these circumstances. Therefore, the only way a trader can improve this skillset is to trade with a live account.
In conclusion trading with a demo account is a great place to start and build confidence. It is a fantastic place to test strategies and practice on new trading instruments, but that is all.
To develop as a trader, the jump to a real account has to be done relatively soon. Start with a smaller account, trade the lowest denomination and increase your experience trading in a real-world environment, where you are rewarded with profit or punished with a loss. Learn from them and keep track of what you are doing in a trading journal so you can refine your trading procedure and/or analysis.
For more information and guidance on what to trade and how-to trade be sure to visit our dedicated forums for our clients and stay tuned to all future news and information releases by Ice FX.