This article seeks to examine and erudite the reader about the differences between a demonstration account, commonly referred to as a demo account, and an actual trading, or live account.
Although the specific examples provided in this article will hover around the forex industry, they are still relevant to other industries, especially stocks and other financial trading accounts. This article will begin by explaining what demo accounts are and why they are used before delving into the differences between a live and demo account.
First, a demo account is a sample account that one uses to test a platform, its execution, learn more about the specific industry, and become accustomed to placing trades. In the currency trading business, these types of accounts are very common and nearly every reputable broker worth trading with offers potential customers the opportunity to practice trading on a demo account.
Customarily, the user is given a large sum of virtual money, generally between fifty to one hundred thousand dollars to practice with. Next, most accounts are unlimited in time. Meaning one can test the platform for as long as he or she needs to until that person feels comfortable using real money. Next, let's go over some of the psychological differences and of practice accounts versus live accounts.
So now that we know what these types of accounts are we can discuss the psychological differences between the two accounts. Most importantly, demo accounts do not use real money. What does this mean for you, the trader? Psychologically, you are trading with virtual money that you did not earn.
Therefore, in a sense, you have no stake in the money and will most likely view it as a freebie. When trading with a real account, you are using finances that you earned and have an attachment to. The feeling of learning and relaxation may potentially deceive a demo account trader into believing his or her performance is better than it actually is. Thereby, you will be much more cautious and trade systematically when using real money on a live account. Remember this when testing demo accounts.
In conclusion, remember that psychology affects a trader and his performance. A demo account trader may not be properly utilizing the platform and virtual money. The feeling of being taught or not having the stress of losses may delude one into believing he or she is finance rockstar. In reality, remember that psychology of a demo account is much different than one's psychological state during live trading.