Stop Trading Demo Accounts

Demo accounts have three uses:

  1. For brand new traders who need to learn the basic concepts of trading i.e. pips, long and short positions.
  2. Testing out a broker’s platform before going live.
  3. Primary testing for a new method.

That is all demo accounts should be used for PERIOD!

My email inbox is scary because it’s full of horror stories. They almost always start and end the same way. A newbie opens a demo account and triples his pretend money. Thinking he is a super trader he goes live with lots of money and loses it all.

Why?

Well think about it this way. If a little 8 year old boy pointed a toy gun at you and said “give me all your money” you would laugh. If some big tattooed grizzly bear looking guy on a Harley points a real gun at you and says “give me all your money” you would probably hand over the money. One is a small unintimidating child with a fake gun the other is a big intimidating criminal who robs people for a living.

The difference between demo and live trading is the same. On one hand, you got an unintimidating fake market on the other an intimidating live market in which you trade real money.

Even if you get a kid to point a toy gun at you 10 times a day for 6 months when the big dude on the Harley points his real gun at you, you won’t be prepared and you will hand over your money.

Many people use the flight simulator metaphor to advocate the use of demos. They say some rubbish about how pilots being trained on flight simulators relates to traders being trained on demo accounts. Talk about a flawed concept. Would you trust a pilot who has only ever flown on a simulator? I wouldn’t! All pilots have to log 1500 hours real flight time. Just as all boxers have to spar with real opponents and soldiers in training have to fire real bullets.

Demo trading is bullshit so let’s take a look at why:

1. You Don’t Trade Real Money – It is impossible to have that same sense of uneasiness on a demo account because it is like playing with Monopoly money. Think about it:

  • It’s not real money on the line.
  • There is no real risk.
  • If the trade goes bad you won’t lose anything.

Every trader who has traded a live account knows about the ugly emotions live trades dredge up. Emotions like:

  • The fear of a possible loss.
  • Questioning of your analysis whenever a trade moves against you.
  • Nervousness and anticipation of the end result.

While some of these feelings might be felt when demo trading, you will not feel them to the same extremes you would when you’re trading live.

Pro traders like me learn to control the nervousness. They do this by building up their confidence through live trading. The more trades you take the more confident you become and the more numbed you become to those negative emotions.

When a newbie first puts real money on the line those all those ugly emotions rear their heads. Since newbie’s have not learnt control the emotions can wreak havoc on their accounts. So a newbie has to learn to control those emotions before becoming a profitable trader.

Trading with Monopoly money cannot give you that same rush of destructive emotions. In fact, traders trading demos tend to take trades more liberally and they build up a false confidence. This often leads to developing bad habits such as risking too much.

It doesn’t matter what you tell yourself. The emotions you feel when the Harley dude points a real gun at you are different to the emotions you feel when the little boy points a fake gun at you.

2. Losses Don’t Feel as Real
– I remember when I first started live trading. Whenever I entered a trade I would watch my charts like a hawk. This was especially true when a trade went against me. I would sit and watch, 2 pips, 3, 4, 5, 6……. With every pip that ticked away against me I could feel a little more money falling out of my pocket. I felt it, that stinging sense of loss, because it was real. When the trade finally hit my stop I was $200 poorer.

Would you feel that same sting of loss with a demo account? No! You might feel upset, annoyed even. However, you have the same amount of money in the bank as you had an hour ago. So that feeling of losing your hard earned cash doesn’t show up.

That sense of real loss is an important lesson for a newbie trader. You need to feel that loss to grow as a trader. You also need to numb yourself to that feeling. Every trader has losing trades and learning to accept losses is a valuable lesson a trader must learn.

To learn to accept loss you need to experience real loss.

3. Demos Are Rigged – This is certainly not true of all Forex brokers but much more brokers than you would think rig their demo accounts. Being slipped on entries and exits during volatile periods is a part of live trading. It happens and it’s the nature of the beast. We pro traders know that and deal with it.

However, many brokers out there offer demo accounts in which you get little to no slippage. This gives traders a false sense of how the market really works.

Personally, I would love to never be slipped a single pip on a trade, all traders would. However, sometimes broker just cannot fill you at the requested price. Sometimes you might be slipped 2 pips other times 10 pips. Slippage can eat into your profit margin significantly on some traders.

Many demos give you a false representation of the broker’s performance. So newbies who trade demos for 6 months are trading a much safer market. The real market has snares and traps that can catch or strangle the life out of an unaware newbies account.

Alternatives?

Easy, you just open a small micro account with $100 or more in it and trade live. This will allow you to:

  • Trade real money and learn to control the negative emotions such as fear.
  • Actually feel the sting of a loss and learn to deal with it.
  • Experience actual market conditions and become accustomed to things such as slippage.

So if you’re a newbie who has been trading a demo for more than a few months it’s time to open a real account. Heaps of brokers offer small accounts and micro accounts, here are a few:

GFT Forex are my personal favourite and I have been with GFT for about 5 years now. You can open a mini account with $250 USD.

When Demos are Ok

Demo accounts can be useful at times. You should only use them for the following reasons though:

  1. If you’re a complete newbie and need to familiarize yourself with Forex basics such as going long and short you should definitely mess around with a demo account for a few weeks.
  2. If you are considering going with a broker but you want to test their platform before committing.
  3. If you have developed a new method and you want to do some primary testing on the method to see if the concept works. However after primary testing you should thoroughly test any method on a small live account.

If you’re trading a demo account for any other reasons, it’s time to find your courage and commit to a live account. Do not open a live account with your life savings. Instead start with only an amount you can afford to lose.

Agree or disagree? Discuss below. This is a very important subject so I would like to hear other opinions.

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38 thoughts on “Stop Trading Demo Accounts
  1. Excellent write up Nick, this gets right to the heart of the matter thanks again for all your effortType your comment here…

  2. Hi Nick

    Spot on

    As a Newbie I tested a demo account for 2 months ,no problem ,as you say monopoly money who gives a shit !

    Come the real trade different emotions take over ,you learn faster and losing hurts like hell all part of the learning process

  3. I completely agree. I only traded a demo account for about three weeks before I went live. It was almost impossible to lose on a demo, I know I constantly won. Then I went live, and boy, what a different cash on the line makes!! It also is what truly taught me how to NOT overleverage myself, after the first margin calls. Play money never did that.

  4. Another gem Nick, like most, I traded a demo account but for around 3-months before going live. However I did treat the demo account seriously like it WAS my money. But nothing can prepare you for trading your own money, first trade I thought I was going to have a heart attack, after trading some more I calmed down. Now I am fairly cold about the whole process, sure I get a buzz out of a winning trade, particularly if its around my own S&R and Trend lines and yes I get pissed off when a trade goes against me but again stay cold. It is never personal, a bit like space, no one can hear you scream, so why bother. Thanks

  5. yeah, I love people that say that they are killing the markets. I then ask if it demo and usually it is. There confidence is so high and they are really pretty cocky until they go live and then it gets ugly.

    1. @11andy11:

      Hahahah yeh that is always funny. They talk about having a super amazing method that wins 95% of trades (on a demo account). You just know that when they open a live account they will be decimated. However, no matter what you say and how much you warn them they just don’t get it.

  6. I totally agree with you Nick and what you said on Demo accounts.

    I also started using a Demo account, and when I started trading a Live account, it was a different story.

    All these emotions that you don’t even feel when you demo trade will appear when you trade live.

    It is part of the game, and every trader lives with these emotions inside. You just need to learn how to control them the best you can. Even if you’re an experienced trader, it’s difficult to do so.

  7. Nick, you are absolutely correct. I demo traded for about 3 months and then went live. It is a different ball game. I lost all my capital. I am back to demo trading. Having noted the disadvantages of prolonged demo-trading I will now move on to real trading on micro account. The problem is my broker does not offer micro accounts. I agree it is important to experience real life trading using a small account (mini) before involving large risks.

  8. So true Nick. I just finished trading demo starting with $ 50,000 monopoly money. In three months my balance grew to a bit more than $ 200,000.

    So I think, OK. I’m ready to go live now. Two days ago I opened a live micro account with $ 1,000 which equals to $ 100,000 in micro account. That should be enough right?

    Well guess what? In two f…ing days I lost $ 120 or $ 12,000. What the (&(&$)*@@%$#@!!!! Arrrrrgggghhhh…… I

    I did everything exactly the same as in my demo account except for my stop loss. My I get crossed eyed and read the chart the opposite?

  9. I had pretty similar experience to point 2. raised by Nick. Having good wins on a demo then decide to use a live account and everything turns to shit.

    Personally, I’m still a complete noob by all accounts and have moved back to a demo account while I learn more about how the market works etc. because last time I was flying blind …. I understood the basics of putting on a trade etc. I was just trading at the wrong times ie. during news, no clue about support/resistance levels etc. plus I was using a “enter/exit when these two lines cross method”.

  10. Agree 100% on the Killer Demo Guy. I was him! With large Stop Losses and no Real fear of loosing, it was much easier and I was more consistent. I would suggest to anyone that is making the move to a real account, that no matter your beginning fund balance, that you trade 2 mini lots. You will experience real emotions but it won’t hurt as much.

    I personally take profits at 15 / 20 /25 pips (depending on time frame and momentum), and then move Stop Loss to plus 2 pips (to cover commission), on balance. “Balance” is closed based on typical TA and price projections

  11. True, but people should also be aware that if you can’t make profit on a demo, you have no hope of doing so on a real account.

    There is nothing wrong with trading a demo until *you* feel comfortable. Just don’t *expect* the success to always translate to a real account.

    The trick is that you have to treat a demo as if it was real money. With mental strength that is perfectly possible. I’ve traded demos with every ounce of care I would my real accounts when testing out strategies and methods until I’m happy they can be put into real world situations. This is the point I move to microlots, and then onto full accounts (mixing standard and mini lots, or £/per as I spreadbet).

  12. spot on, i rade since day one real money and learn how hard it is to get a few dollars in my account, i try to trade the same with DEMO and that is so easy suddenly!

    yes when a trade goes aginst you with real money this is just an differt feeling as it is in a DEMO….lol

  13. Hi Nick. I kinda skipped the whole demo trading chapter of my trading career completely. Instead I watched the brokers short video on how to use their platform and jumped straight into live trading with $100 of capital. (that was in February of this year).
    Anyway, I decided that I can afford to put in $100 each month and learn how to trade. Now, 9 months into my live trading career, I have deposited $900 and have a drawdown of $280.
    Not bad for a comlete beginner. I have only been margined out once in 9 mths and it took my account all the way down to $70.

  14. Matt, you are absolutely right. If you can’t make money on a demo…you have no business trading live!! Live trading may give you a feeling of “reality”, but you need to be ready for that. No sense in going live just because demos are not “real enough”! The trick is to use ones head for something besides a hatrack! Trade a demo til you CAN make money, then you at least have a chance when you go live. At any rate that is my experience.

  15. Demos are real suicides, I had been telling friends to use live micro accounts all along to feel the the difference. Good of you to post this in your blog so I can send this link to my friends.

  16. Great post Nick, particuarlay love the kid with a toy gun analogy !

    Demo sucks because, as you say, it lulls you into a false sense of security.

    I’d also add that demo sucks because it’s not a true data feed usually. My broker exceutes my demo trades perfectly yet when I go live slips me EVERY time, especially when closing. Talk about stressful!

    And, while I agree with you re opening a small live account I am just not sure it’s possible for me to trade at that small level. Psychologically there is something utterly frustrating about making 40 ish pips (say) and have it equal $4.00. I find myself holding out to get to the 60-70 pips mark for a whole $2-$3 more. Hooray!!!

    Would be interested to hear other people’s thoughts on that one :)

  17. You can open an account with OANDA for any amount. If you want to. Open one for 50.00 dollars no problem. The downside to a nano account is that the temptation to develop lousy money management habits. You will trade more than 2 percent of your account I guarantee. However if you blow these small accounts you have no business increasing your trading size.

  18. Well put, Nick. This BUSINESS is not for fantasists or people with no money at all. If you have none, save some and then come back again – you can always open a micro account. All you do is learn bad habits and ignore your own pyschology if you don’t get trading a little bit a soon as possible, maybe after a month or two of initial learning if you’re a total newbie.
    Finding a ‘comfort’ zone, if there is one, only comes through direct experience, just like everything else in life, and this market takes no prisoners.
    This is a great site – you tell it how it is.

  19. haha i still remember my first demo trade, I gain 1000++ pips on the first night and got cocky and confident. Soon after that I trade with real money, and blew my account like C4. The feeling of losing was so intense and crazy, it’s like ur soul and body split into two….now after blowing 4th account i don feel anything when entering the market anymore…LOL

  20. I agree with the idea of demo-trading, but as if you are live-trading so you get the experience before going live. I have demo-traded for a few months and I know I am now more confident going live. I have also seen what mistakes I made in the past which I am trying to correct while trading live and receiving mentoring from experienced traders/ instructors.

  21. Twinky! Thanks for your comment about micros! What I do is I treat A TEN CENT MOVE the same way I would treat a TEN DOLLAR move. It is identical, really. The object in trading a micro is that as you become better you can add lots……eventually you are trading a mini. And all without risking a LOT of capital while still getting a feel for reality. See if that makes sense to you!!

  22. I demo traded for two weeks. I have now been live for a month trading £0.10 per pip. Your advice is solid Nick. Migrating from a demo account a live account was an enormous culture shock.

  23. For me, what goes hand in hand with this discussion is position size. On my demo account, I used way too much leverage. When I went live I used way too much leverage. The amount of anxiety, fear, anger, and pure jubilation I experienced was off the charts. After I took some pretty big hits I learned my lesson and started trading an appropriate position size. It’s fantastic because I no longer focus on how much money I’m ahead or behind, but just making good trades. Was it a good entry? Was it a good exit? Yeah, it went 20 points against me, but the stop loss was set below support, the trade bounced off support and went green. I’m much more focused on being a smarter trader than the dollar amount. If the goal is to learn to become a more emotionally detached trader, then there’s no better way to do that than trade real money, with the appropriate sized leverage. When I look back on my journal and see a track record of trading success, I have more confidence while a trade is going against me, and when I pull the plug (early) on a loser, because I know that over the long haul my strategy is successfull, and there will be losers. But I don’t put myself in a position where I’m sitting on the edge of my seat with my heart pounding out of my chest because I’m upside down 3 large on a bad trade.

  24. Nick,

    Well spotted and detailed. It’s a very nice reminder for the “Golden Trading Rules” if I may say.

    Losing 0.25 $ in a live account gives much more learning points than losing 1000 $ in a demo account; believe it or not!!

    Regards,

  25. I may be a perfect example of what you descibed. I went live a very short time after demo-ing on advice such as this. Yes; probably too soon (my decision). However; and I don’t mind telling the truth here if it helps someone, I opened up two accounts with $500 each. I now have just under $600.00 total. I was down even more but have been inching my way back and I actually feel good about it.
    The point is that while I could bore everyone with re-hashing everything you just said, I do not think I would have ever learned as much, correct that, felt as much as I did in trading real money. So last but not least, I agree with what Nick says here whole-heartedly! Remember though; trade with only what you can throw in the gutter while you’re a noob because it’s not a nice feeling to see those candles move against you. (o:

  26. OH my god! I just read all this now I”m terrified- I’m going to start with micro I’m about to go live. NeilA hahaha great post funny- no one can hear you scream hahaha loved it

  27. I do not have the experience to argue to much on this point, however the flight simulator analagy is quite interesting. I am a fairly experienced pilot (PPL) and play with MS flight sim (FS). The contrast between the two parallel the points of this blog:

    1. If I do flight sim there is no preparation required, when I fly for real it takes an hour or two of prep including risk assesment, weather etc and a plan B for the unexpected. Exactly what I think we should be doing in Forex before each trade.

    2. In FS I can do realy stupid things and see what the results are in some accuracy, my experience with Demo accounts mirror this. Far better to get the experimentation out of the way and move well away from gambling!

    3. If I fly a new aircraft or route, FS quite accurately models performance etc, need I say more about demo accounts.

    4. I do not plan to go live for at least 3 months, about the same ammount of time I had to study for my PPL exams.

    5. My first solo was really scary, my main comfort was to stick to the training and advise, stay disciplined and as long as too many small mistakes do not add up to a cluster, there is a high probability that I will be OK.

  28. I don’t know what software you guys are using, but with GTF demo it’s just like live trading, and I sure have lost a bunch of demo monies. I am looking for better methods to trade, I’ll give this a shot, I sure hope it is a complete method, so many others leave out important details , and to get the details you to buy their stuff. I am not going live until I can make money on their demo.

  29. i have been trading on oandas demo account and it seems to execute trades very fast, does any here use a live account on oanda, is it the same as the demo or is there a lot of slippage,

  30. Hi Nick, I’m new here and I’m completely new at trading, and I cannot stress how thankful I am that you have shared all this information with all of us. my experience with my demo account has been different though. I use scalp lines to make predictions and for a while I did not open any accounts, I just drew lines on the graph to make predictions, and almost 100% of the time my predictions were right, the problem comes when I open an account, the exact opposite seems to happen, almost all but one of my predictions were wrong. I use the FXCM trading station. I really do not understand and this has discouraged me to open a live account. I tried other brokers but non of their platforms is as user friendly as the one I use :(

  31. Your write up is 100% true. Same happened to me. I have put in real money twice and lost almost all. That was when I finally chose to stick to my trading rules/conditions/disciplines before I place a trade. If I don’t see what I know would make my trade win, then I won’t place a trade no matter what. Praise God, I’m now more confident and don’t stick my eyes every second to watch the outcome of my trades.