Traders transitioning from using trading CFDs demo accounts into live accounts are having a tough time differentiating one from the other. There is a considerable difference between the results achieved in demo accounts and the ones that you got from live trading. There are people who perform well in demo accounts but end up with different results in live accounts. This is a phenomenon that is caused when the own funds of the trader are at risk, they will adopt a different mindset, something that couldn’t arise when virtual money is used.
This factor needs to be taken into account when you assess the value of your trading strategy, in particular or if you are testing the services of your CFD broker. Two of the reasons for these circumstances can be related to these categories; trader-related and execution-related.
Execution Related Differences
These are the possible causes of the difference in performance seen on a live account and demo account;
- The broker may re quote the price of a demo account but will never re quote those from live prices that are execution-related.
- The dealing spreads and the price feed of the broker in the demo account may have huge differences compared to the ones in the live trading accounts.
- The demo stop-loss orders may be executed accurately but might create slippage when it is used in the live trading environment.
- Broker errors are possible in live trading, something that’s not heard of in demo accounts. But broker errors are considered as a waste of time, effort, and money of traders.
- There are brokers who are not honest enough to offer their actual trading platform for demo purposes. With this big difference, the trader will now have to adopt a new trading platform upon their switch from demo account to live to trade.
Trader Related Differences
These are the possible causes of differences that are trader related;
- No commitment because they are not using real money in a demo account. They are seeing it as an unrealistic environment and therefore, not worthy to be committed to. This is something not felt by traders when actual funds are on the line.
- In demo accounts, traders think that they don’t need to follow their trading plan because it is just a simulation of the real, live market. This is something that must be changed soon. This may result in traders developing bad habits on trading that can transition when they are finally using live accounts.
- Overtrading is very much possible in demo accounts. Traders tend to overtrade because they fail to evaluate the risks associated with their accounts because they are only using demo accounts. This is something that gets utterly serious and negative consequences will be faced once they go to the live account.
Benefits of Using Demo Accounts
One of the main benefits of using a demo account and something that is usually missed by traders is how virtual money removes the psychological side of trading. Additionally, trading CFDs in simulation accounts help you test your trading strategy while testing the performance of your trading plan too. This is a real deal for traders, new traders to be precise.