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The following guest post is courtesy of Yael Warman, Content Manager at Leverate.
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For new traders, or even experienced ones used to dealing with a designated broker, the access to a demo account cannot be underestimated. A demo account offers traders a number of advantages that we will discuss below, but by way of introduction, it is necessary to urge traders to utilise this aspect of the trading platform, which will in turn allow them to find their feet in a new world of trading.
It is worth noting that one element of trading cannot be replicated by using a demo account. This is the adrenaline that a trader gets from placing a trade, and seeing their investment rise or fall as dictated by the markets. Although it’s impossible to imitate this feeling when using virtual funds, the demo account does allow traders to benefit in the following ways:
1) Familiarisation with the Platform
The best demo accounts allow the trader full access to the entire platform, with a trading experience identical to that of someone using real funds. This is essential in order to understand the full capabilities of the trading platform, whether that be adding money to the account, improving one’s knowledge of the tools available to the trader, learning more about the trading methods available, and more about the method by which the trader places a trade.
In relation to this, a good demo account will provide access to first class tools, which also assist in the learning process.
2) Understanding the Assets
A good demo account allows traders to gain an in-depth knowledge of the products available for investment purposes. A trader needs to ensure that they have a good knowledge of the assets in which they are investing, and the best demo accounts allow access to a number of graphs and charts, allowing the trader to chart the trends of the asset.
The best advice given is to maintain a small and well-researched portfolio of assets in one’s account, ensuring that the trader is in control of all the assets they have at any one time. Whilst trading is an investment method in which one can lose money, and no amount of research can guarantee immunity from such losses, they are greatly minimised by ensuring that the trader does one’s homework.
3) Honing Discipline
Whilst some trading sites will permit a trader to maintain a demo account for months on end, it is certainly not to in the benefit of the trader to remain in this simulated platform for so long. Of course one should use the demo account to practice discipline in one’s trading methods for as long as is needed, but once the trader understands how the system works, the demo account will no longer be as beneficial.
One must remember that discipline is needed: Binary options generally do not allow for early cash out, so once the trade is placed, you are rather limited in your abilities to alter the outcome.
In contrast, trading in stocks, commodities and currencies do allow a trader to sell and buy at will. As such, learning the ability to maintain your patience is vital, and will stand you in good stead. Creating a sound plan, and sticking to it, will usually be followed by favourable outcomes, and a good demo account will give traders time to practice different strategies in relation to different assets.
4) Social Engagement
Demo accounts that are integrated with social trading platforms are a great way for a new trader to get their feet wet and acquire the necessary knowledge to begin trading. Social trading allows new traders to watch what more experience traders (masters) do, what their strategies are like and if they like what they see, copy their actions. For experienced traders, social trading provides them with access to market sentiment, allowing them to keep a pulse on the market.
While social trading in demo mode is a great tool, the ability to transfer the activities done in demo mode onto real mode is an excellent feature that not every platform provides. Social trading platforms which allow traders to seamlessly transfer the activities performed in demo, such as copied masters, can help traders save valuable time.
Overall, traders benefit enormously from a top class demo account, and are well advised to shop around to find such a platform. Good luck!