As with most forms of trading and investing, CFD brokers tend to offer demo accounts trading virtual money as part of their marketing strategy. While not everyone will relish the prospect of investing their time and effort in trading for no reward, demo accounts come thoroughly recommended as a pre-trading tool, and provide the ideal environment for new traders to get to grips with their chosen platforms and learn the basics of their trading strategy before getting involved for real. But what are the benefits of trading CFDs through a demo account, and how does this play in to improving trading success?
Demo accounts are a great way of researching different trading platforms and trying out various brokers for size. The demo account is essentially an exact replica of a regular trading account, trading on live markets and applying commissions and leverage costs as would be the case if real money was at stake – the only difference is that positions are virtual, and so profits and losses are for illustrative purposes only.
Learning the Platform with a Demo Account
This makes it possible to get a feel for the trading interface, and provides the perfect setting for new traders to learn how to execute orders, set stops and interpret live market data to make trading decisions. In the absence of a virtual account, early mistakes in both trading style and execution can be costly, whereas the virtual environment provides a risk-free platform in which traders can refine their style and build on their theoretical knowledge.
In addition to serving as an important research tool for helping differentiate between brokers, demo accounts are also an essential part of the learning experience, affording no-risk trading on real markets to provide an opportunity to try out different trading strategies and put the theory into practice. Particularly considering the extent to which losses can be magnified in trading CFDs, demo accounts are especially important in bridging the gap between knowledge and experience.
Multiple CFD Demo Accounts
Many new traders make the mistake of settling for just one demo account, and try to fit in their trading style around the setup and layout of the broker’s platform. In actuality, a better strategy is to open several different virtual trading accounts to give a broader cross-section of what the market has to offer. Only by experiencing different brokers first hand can you start to form an idea of which offers the best package for you, and without a thorough examination of demo trading accounts you’re effectively taking a punt in assuming your chosen broker has the most to offer.
While demo accounts are a useful tool for traders looking to try their hand at CFD trading without incorporating risk, it is important to care for your account as if it were real capital. All too often traders fall into the trap of taking unrealistic risks, or making whimsical decisions that they would be more reluctant to make if they were investing their own capital. It’s obviously difficult to have exactly the same attitude when trading virtual cash, but it’s important that you take steps to ensure you’re trading as you would in the real world at all times, in order to give a more predictable indication of how your theory is working in practice. Ultimately, while your overall performance in your demo account gives a rough guide as to how you might get on trading for real, it is a dangerous tactic to rely on past performance trading virtual cash as an indicator of sure-fire success when you start hitting the markets for real.