A demo account is a useful tool that you can use to practice trading with real market data, but without any risks. That said, it’s important to acknowledge the limitations of demo trading.
1. No impact on your finances
With a demo account, you trade with virtual money, so any gains or losses you experience have no effect on your actual finances.
2. Different approach to trade amounts
On a demo account, you have unlimited virtual funds to practice trading. It’s nice to have a safe trading playground, but relying on it for too long may influence your decision-making, and you’ll end up acting differently than you would on a live account.
For instance, opening trades worth thousands of dollars on a demo account while planning to trade with only ten dollars on a live account renders the training experience on the demo effectively useless.
3. No emotional involvement
Trading on a demo account won’t evoke the same emotional responses as live trading. After a bad trade on a demo account, you will probably feel little or no stress. On a live account, losing actual money feels completely different.
4. Complacency
Having a solid routine is important for success, but if you stay on a demo account too long, you may get stuck in the same patterns. Without a certain degree of innovation and critical thinking, transitioning to a live account may prove challenging.
5. Fear
The longer you remain in the safety of a demo account, the harder it may be to switch to real trading for fear of losing real money.
To overcome these limitations, try trading on a live account with a small deposit. This way, you’ll limit your risks and get real trading experience at the same time. The minimum deposit is only $10, so you can open ten trades worth $1 each and get the feel for live trading.
For tips on live account trading, proceed to the next lesson.