As any beginner will tell you, there is much to be learnt about the markets and how to trade them. Jump ahead and talk to an experienced trader, and the surprising thing is that they will tell you exactly the same thing. If you are just starting out and want to be able to master the basics so that you can lay the right foundations, demo account trading is the best approach to take.
By being proactive with your learning and your attempts to improve your financial literacy, you can unlock significant personal growth. Far more than simply a way to potentially profit from the markets, this is actually a way to increase your self-confidence, self-belief, and ability to take on fresh challenges in many other areas of life.
What Is Demo Account Trading?
A demo account is essentially a practice account that allows you to place realistic trades with virtual money in a market that behaves just like the real thing. Many demo accounts take real-world data from functioning markets and feed it into a platform that uses virtual money. The key point here is that you won’t have to risk any real money while you are learning the basics and attempting to master the fundamentals. Ideal when you want to ease yourself into the trading world in a way that doesn’t risk wiping you out financially.
The vast majority of beginners and financial novices who aspire to improve start out with a demo account. They are able to learn at their own pace and gradually get to grips with some of the more important nuances and finer points of live trading, without risking real money. Many demo accounts also have built-in training aids and libraries of tutorials that allow you to get up to speed more efficiently. It’s all about developing an intuitive feel for what the markets are going to do and then using this understanding to place winning trades.
Develop An Understanding Of Market Dynamics
The market is something that can captivate you if you have never thought about it before, but there are proven ways to start understanding what it’s doing and why it is evolving the way it is. Market dynamics, while complex at heart, are nothing more than the net result of the actions of billions of people around the world. The point here is that by using some mathematical tools to chart behavior and then combining these with some knowledge of the news and a little human psychology, you can go a long way.
Demo accounts allow you to watch the markets and make trades as a way of trying to predict what will happen next. The simple act of placing a trade will help clarify your thinking and make the outcome so much more memorable — it forces you to pay attention to what the market is doing. The more practice you get, the more you will be able to intuitively predict what the market is going to do next. While it will never be an exact science, it is something you can definitely develop a very accurate feel for.
Build Financial Confidence
As your feel for the market improves, your confidence will increase. Of course, you don’t want to be confident to the point where you constantly take unnecessary risks, but you are just at the very early stages right now. Having confidence in what you are seeing on the screen and knowing that you are able to interpret what it means will help in many areas of life.
We like to think of financial confidence as one offshoot of self-confidence, and self-confidence is something that can help in every area of your life. Seeing that you can get better at something with the right tools and through consistent, steady practice shows you that you can reach higher in other aspects of your life.
Understand How Trading Platforms Work
A demo account will also allow you to get familiar and comfortable with how the most popular trading platforms work. Understanding the mechanics of the software and having time to experiment with the various tools and charts that are provided will help you apply what you know so much better. Being able to navigate between different charts and hold multiple pieces of data in your mind as you make a decision on whether or not to place a new trade will help improve your focus, attention, and core understanding. Precisely what’s needed when you want to be able to take a smart approach to risk management.
Learn How To Manage Risk
Going to sites like ThinkMarkets and setting up a demo account will help you understand the finer points of risk management. Yes, you are trading with virtual currency and therefore have nothing to lose, but the whole point is to remove the consequences, not to turn your back on the nature of risk itself.
Learn how to set up stop-loss and take-profit orders, without real money being at risk, will help you take a more strategic approach to managing your trades. This is essential if you want to eventually transition to trading live with real money, but also if you want to further enhance your understanding of the markets. Thinking in detail about how you can secure each trade against potential volatility forces you to consider the finer points and nuances of market dynamics in more detail. Doing this is what will improve your understanding and give you greater confidence in what you know.
Practice Executing Trading Strategies
Once you start to think about risk management, you will naturally move to thinking about how to execute longer-term trading strategies. Thinking about how your money will get to work in the markets over an extended period of time will help you to think more deeply about how the markets work and what causes them to ebb and flow so often.
Even skilled traders with many years of experience behind them regularly train and practice with virtual money so that they can assess the pros and cons of new trading strategies they are developing. If you are a novice, you will find that the easiest way to learn is to adopt half a dozen well-established strategies and then work through them one at a time. Once you have seen how they perform in a variety of different market conditions, you could then start making small modifications to them that allow you to further improve your understanding. As your confidence and knowledge improve, you will get closer and closer to the point where you are ready to try making small trades with real money in live markets.
Transition From Demo To Live Trading
Using demo account trading as a way to transition from learning to live trading is something that many of the world’s most successful traders have done over the years. The key thing to remember is that you need to start demo trading with virtual money as if it were real money at some point. Doing so will make sure that you get used to managing the mental side of riskand learn to force yourself to trade under pressure. Failing to do so may result in you quickly becoming overwhelmed if a position doesn’t evolve as you expect it to.
You can think of demo account trading as a way to master the fundamentals, test more in-depth strategies, and get up to speed with how your chosen trading platform works. Even if you decide you don’t want to transition to trading with live money, the improved financial understanding that you will develop along the way will be priceless.
The Last Word
Exploring the world of demo account trading will allow you to get to grips with the basics and take your time to master the fundamentals. While consistently making winning trades in a demo environment is not a 100% guarantee of success if you choose to go live and trade with real money, it is a strong indicator that you now understand what you are doing.
Taking your time to work through the many online tutorials and explainer articles you will find will help you to master increasingly complex strategies. You can also develop your own strategies by modifying existing approaches and then feeding real-world data into them. Doing this is something that’s not just limited to aspiring beginners — the world’s best traders often take a step back and practice.
Work through the basics one by one, and you will be able to improve your financial literacy and increase your understanding before you know it.
