Before you pull the trigger and begin to invest in the capital markets, you should take advantage of the educational material available on your broker’s trading application. In addition to videos, articles and webinars that describe strategies and risk management, most reputable brokers also offer a trading demo account. A demonstration account allows you to learn how to trade specific markets before you risk real capital. By using a demonstration account, you can see how the market moves in real-time and eliminate some of the bugs in the process before you risk your hard earned money.
What is a Demo Account?
A demo account is an account provided by your broker where you can trade the market while only risking demo money. Your broker will provide you with a specific amount of demo money which is generally unlimited. The amount of time that you can use a demo account will vary. Some brokers cut your demo capabilities off, while others allow you to keep your demo account open indefinitely.
Your demo account allows you to test drive the platform as well as any strategies that you want to employ. You get the opportunity to see how the platform works in real-time allowing you to execute trades on the assets that you plan to transact. In addition, you get to see how these trades look when you are managing your positions. You can view your balances as well as how much margin you have available. Lastly, many brokers allow you to use your demo account, manage your position and execute trades using a mobile device.
Testing Your Strategies
The most important feature of the demonstration account is that it allows you to manage your risk and test out your strategies before you risk your capital. The benefits of this feature are crucial. If you thought you where going to employ a scalping strategy, and did not incorporate slippage, the demo account will prove whether your strategy can work.
Slippage is the amount that the market moves when you attempt to execute a trade. Many times, when the markets are volatile, a currency pair or commodity will move quickly at certain support and resistance levels. You might see a 10-pip move at certain levels, making it difficult to transact. If your strategy is based on chances at key levels, the demo account might alert you as to whether this strategy will work in real-time.
Testing Your Broker’s Trading Platform
The demo account will also allow you to test your broker’s platform. You can execute trades, testing how quickly the platform reacts, and see how your positions look once you have them on the books. Don’t worry about making a mistake, see how everything works when you have this opportunity. Test the orders including limit and stop orders and see how quickly the system reacts.
A demonstration account allows you to learn how to trade specific markets before you risk real capital. By using a demonstration account, you can see how the market moves in real-time and eliminate some of the bugs in your process before you risk you hard earned money. Make sure you test your strategy as well as the intricacies of the platform using a demo account before you risk your own capital.