Differences between a Demo Account and a Real Account

A demo account is a great tool to learn how to invest. It allows you to familiarize yourself with the trading platform and the trading conditions of your broker online without risking your money as you manage a virtual balance for operations. When you have practiced enough in the demo account you can open a real account and start investing your own money.

Many beginners think that a demo account and a real account work exactly the same but this is not correct because there are some differences from the point of view of the trader and a technical level. These are the main ones:

1- Differences in the mind of the trader

Everyone we like to get real benefits as soon as possible and this does not happen to manage a demo account. Many traders fall into impatience and open a real account after a short period of time managing a demo account without sufficient knowledge or there are even those who open the real account without having practiced in demo. Open a real account precipitously can end your equity much earlier than you think and a couple of successful operations in demo does not mean you're ready to operate in real.

A demo account for a beginner trader should be very similar to a flight simulator for the student of a course of aviation pilot. If the future pilot take lightly the simulator and manages without any pressure, you will hardly be able to properly handle a real plane. It would be even very dangerous to fly planes empezase precipitously without enough hours of practice.

In this article How to use a demo account to learn to make trading? you can find a number of simple recommendations that can help you manage a demo account properly.

Still, when handling real money you'll always have a greater psychological pressure and must face a range of emotions that can make you behave in a completely different way than when you operate with a demo account. Control fear, greed and adequately address both winning and losing trades are key factors to become a profitable trader.

If you want to operate in a real account controlling the most of your emotions you must first learn to do it on a demo account to work with discipline for several months, unhurried, and sipping the demo account entirely seriously as if your real money is at stake . When you've built your own trading system and you've improved with practice is profit in demo regularly for a while before moving on to a real account. As you feel comfortable and confident you can plantearte open a real account and start with a prudent amount of money you can afford to lose.

Risking too much money you can not afford to lose or try to make trading as a solution to a difficult economic situation will not be helpful but rather will become easy prey to your emotions.

2- Technical differences in order execution

If we see both a demo account and a real account of it online broker will see that the price quote is usually identical and in both cases usually the broker applies the same spread (difference between the purchase price and sales). Here's all the same but the main difference is that whatever position we open a demo account is automatically accepted, is not transferred to any third party and runs only on servers broker with which we work.

Although the demo is a good tool to analyze the market and create our own trading system really is a fictional setting where you can open any position without problems regardless of size or market circumstances. There is no difference in this regard between opening an operation of a microlote (0.01 lots) or 500 standard lots since both are false and never reach the real market.

Instead the open positions in a real account, such as brokers ECN / STP type must transfer the orders to market to a third party is known as liquidity provider. Liquidity providers must find a counterparty for your operation (for someone to buy someone should sell and someone to sell someone should buy). Liquidity providers are usually large banks and financial institutions such as Deutsche Bank, Bank of America, Barclays, Goldman Sachs, JP Morgan, Citibank, HSBC..

In any operation you request by clicking on Buy or Sell in your trading platform, your online broker within milliseconds should receive the order on your server and transfer one of its liquidity providers must accept and confirm the execution.

In demo not usually found rarely problems in this regard but when operating in a real environment, depending on the market where if you cover, the time and especially in times of high volatility coinciding with events or major economic news markets, during the time between when you request the opening position until it reaches the liquidity provider the execution price may have changed and when requotes (requotes), landslides (slippage) or even rejections occur. Usually your broker can give you a warning message if the execution price is too far from the price you requested or if the difference is small can execute the order at the best price possible.

Although technically these differences may not be the most important for most traders if they can have an impact to consider for traders who handle a high volume or size of operations (scalping, automatic trading systems, ...). For best performance in this regard it is best to work with brokers that offer fast execution of orders (including VPS servers from which to run your operations with the highest availability and the lowest possible latency) and work with several suppliers significant liquidity.

Conclusion :

As seen, the main difference between a demo account and a real account is in the emotions of the trader that can take you to operate differently depending operates with a virtual balance or your actual money respectively. At higher have certain technical differences in the execution of orders as liquidity is infinite in a demo account and latency is virtually nil while in a real account if they can be factors to consider especially for certain trading strategies like scalping

There are some traders with the view that the best way to really know if you win or lose is to operate only in a real account. Personally my experience I think it is more advisable to learn to invest first in a demo account but the way we discussed before: taking the demo account seriously as if real money it were, with patience and discipline, practicing enough to get a system profitable trading without rush to open a real account early.

Share this

Related Posts

Next Post »