Demo accounts are great for many reasons. They offer the opportunity to try a strategy without risking everything and they allow for traders to try out a platform without having to commit their investment capital. However, depending on who you trade a demo account with, you could be preparing yourself for unrealistic expectations. Whether you are looking into a new broker and trying out their demo account to see if you want to invest money or if you are just going back to practice a new strategy, there are a few things to keep in mind when it comes to trading a demo account.
Be it trying out a new strategy or making slight changes to a new one, demo accounts give a great spot to not have to worry about losing your profits while ironing out aspects of a new trade plan. This lets you see how your technique would fare in the live markets with no risk. This is a great opportunity to learn and develop in trading, and the major reason Shawn Lucas gives all traders the opportunity to use up to five simulated accounts; plus the silver, gold, and prefund accounts in Alveo to train and work in before trading a funded account.
Another major benefit to a simulated account is that it gives you an opportunity to adapt to a new platform or a new broker. When switching from comfort, having an introduction period to become accustomed to everything can make a huge difference. Using the simulated account in a new place lets you experience the spreads, button placement, execution time, and more without worry of losing your newly deposited funds. A simulated account also gives time to be able to work with the broker and answer questions they may try to hide the answers to until you start trading with them, questions you can find in 'Questions to Ask a Broker.'
One thing to consider while in a simulated account, however, is how it works. Some brokers make it so that the simulated accounts are delayed by up to 15 minutes. These delays can make trading certain events like the market’s opens/closes or certain news events worse for practice than not. Another thing to consider when trading a simulated account is, does it act as a real account in terms of slippage and fill times? Some accounts, since they are simulated, can fill and close trades at the exact price you set it to giving unrealistic results, especially in scalping scenarios. These types of drawbacks are the reason Shawn Lucas uses live market data and execution even in simulated accounts. This is something that not all platforms and brokers do but can affect your trading.
No matter the reason you are in a simulated account, knowing how it operates and can change your trading should be taken into account. Not all demo accounts are created equal. While this isn’t bad, it is also crucial to know the pros and cons of your specific simulated account when it comes to your trading. You don’t want to be caught in a situation where something completely normal for the market happens but you are unprepared for it due to not knowing exactly how your simulated account varied from live conditions.