Nearly every binary options broker on the market has started offering their traders the opportunity to trade on their platform without using real money. And normally we are all behind that idea. It’s a great chance to earn some experience and feel less nervous about being out the and trade in the real world.
But very often trading too long on your demo account can be just as harmful as it was useful in the beginning. Why is that? Simply because trading using a demo account for longer that it is needed makes you develop poor trading habits and decreases your chances to succeed when you switch to the real money account.
Here are the top 3 reason for that:
1. Losing on a demo account doesn’t feel as painful as losing real money.
It might sound harsh, but sometimes to lose money is a positive thing for a newbie trader. It shows you that you are always vulnerable when trading on the markets. Of course, we are not suggesting blowing away all your money! But having some losses on your account occasionally remind you that markets are tough and you should always be cautious.
2. You are trading larger amounts of money on a demo than on your regular account.
When trading in a simulated environment, traders tend to bet larger amounts than they are able to in real life. Supposedly, it will make trading large amounts in your real money account easier for you. But the truth is that even if you have good money management strategies and are a careful trader, trading too much on a demo will make it tempting to chase your first big loss with a larger trade than you can perform.
3. You are more prone to overtrade on a demo account.
Demo accounts often tend to resemble real world trading but at reduced spreads. On a demo, a trader can be profitable at a .5 pip spread. But try that with real money you get eaten alive with a similar strategy at a 1.3 pip spread. Thus, demo makes overtrading easy, especially for the novice traders.
Making The Best Out Of Your Demo Account.
But should you avoid demo accounts altogether? No, not at all! Demo trading is a great way to practice for a while. But don’t get carried away! Trading for a long time without any risk attached to it is pointless. Eventually, you need to switch to the real money account. Even with a small amount of money (or even just a minimum deposit), you will experience trading from the whole new perspective.
Frankly, this is because some amount of risk is a trader’s friend. It keeps you focused and present. This isn’t by any means something new, but sometimes we need to be reminded of it.
So make sure you’re using your trading demo account during a reasonable amount of time, and then let it go and trade with real money. Because that’s when the real fun begins!
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