Trading 101 : Is Demo Account Necessary?
I still remember the early days when I was in Forex trading. I was practicing on demo account for almost 3 months and it's absolutely fabulous. The results was outstanding I can say. Then the ego cloud has covered my conscious clear mind. Not even a week on live trading I blew it. That was the time when a demo account hero turn to zero in live trading. I bet that a lot of traders out there has been through it. It's only a matter of pride not to admit it that we were once a demo account hero.
The reason I wrote these articles which include some of my experience is that lately, I noticed a pattern among my friends and most new traders in public forum discussing about how well their performance on their demo account trading but then failed to lift up to the hype of the demo results into live trading. When I heard or read about it, the first reaction was a big smile. Not a smile in a sarcastic way, but more to like "Ahaa...I've been through it and I know why." kind of smile. When they asked why did I smile, I would simply say " My friend, you are trying to drive a real racing car but with the experience from Gran Turismo of PS 3. Be realistic!". The point is, demo account is not a training platform for any traders. In my opinion, demo account trading is much more suitable for testing purposes.
In my opinion and I bet that most traders who has been through this sort of experience will agree with me that demo account is not more that a platform for us to getting to know the Forex market and just another tool to test our trading strategies. The real experience and the final tweak will come from the live trading itself before we get into real live trading. It means that after we get to know the Forex market and also the functions or facilities provided by the broker and thorough testing with the trading method through the demo account, we should move on and put our method, ability, skills and mental strength using a live account but with limited funds in it.
I always told my friends and others who asked my opinion about getting started in Forex trading that they only need not more than $1200 to $1500 as capital. That will include the learning cost which eventually it can turn up to no cost at all if they really understand the meaning of trading and investment. Please understand that the money is not payable to me but instead it is their trading capital. My advice is that they should put $1000 aside as their real live trading capital while $200 to $500 will be the live training capital.
What they should do first is learn all the basic about Forex, get to know and understand how the Forex market works and do some testing with their trading strategies on a demo account first. This could take as long as they like until they are confident and feel suitably prepared for a real challenge in Forex trading.
So, now the first part of Forex trading challenge will be how to implement and work our way within our limitation. The first rule of the challenge is, ONCE YOU BLOW IT, YOU'RE DONE. I always remind my friends that once they blow the live training account, they should really take a deep consideration whether or not to continue in Forex trading. The reason is simple. If you cannot work within your limited budget, what makes you think you can handle a bigger budget?
Working with limited budget as training could also train ourselves to be more discipline. It can help us to come up with a workable strategies so that we can last in Forex trading. With a demo account, if anything happen then we can just reset it by create a new account. However try do it to a live account. How much and how long you can stand by keep on topping up you account if the trade goes bad? Unless you are super duper rich, then it is fine. But if you are into Forex because for an improvement on your financial part, then you will likely making yourself look like a fool.
"Small fund means small profits." I would say that a little bit of bull in it. There will always be a way for us to maximize our profits with a limited budget. We are the one who should make the decision in trading and why not taking the first step by picking up the right risk to reward ratio for our trade. Maybe the profits could not match with a bigger account profits, but in term of percentage gain, it could be more or less the same or even bigger. After all, why should we question the profits now? This is just for training purposes remember? The most important value which we must take into account with live training account is how to manage our small funds using a specific strategy, discipline ourselves from over-trading and most importantly is to value each cent we earn from it.
Even $0.01 is a profit and I will take it if that is the best I can get. Believe me, if during a live training $0.01 profit is not good enough, just imagine how greedy you can get with a real live trading account. Sometimes greedy is good, but the "greedy" which I meant was it can expose ourselves to further negative circumstances which can destruct all the confidence, learning experience and most importantly is the profits which we should have taken.
We may take all the time we need with the live training account as long we didn't blow it. My recommendation will be around 1 to 3 months the max depending on our performance. In the end of the day this method will improve our mental strength and also our trading strategies. After all those 2 are the core element in successful trading. When we feel the confidence is flowing, backed with a steady performance and mentally prepared, then we can take a further step forward by topping up the training account to go into real live trading with the extra $1000 or more depending on how much we can afford.
So, is demo account necessary? I would still say it is necessary for us to try the demo account for learning purposes and also to familiar ourselves with the features or any extras the broker is offering. We could also use the demo account to test our trading system and also strategies. However, when it comes to training, it is recommended that we try to put aside a small fund from our initial capital so that we can learn and experience what is live trading all about.
-Fareed
The reason I wrote these articles which include some of my experience is that lately, I noticed a pattern among my friends and most new traders in public forum discussing about how well their performance on their demo account trading but then failed to lift up to the hype of the demo results into live trading. When I heard or read about it, the first reaction was a big smile. Not a smile in a sarcastic way, but more to like "Ahaa...I've been through it and I know why." kind of smile. When they asked why did I smile, I would simply say " My friend, you are trying to drive a real racing car but with the experience from Gran Turismo of PS 3. Be realistic!". The point is, demo account is not a training platform for any traders. In my opinion, demo account trading is much more suitable for testing purposes.
In my opinion and I bet that most traders who has been through this sort of experience will agree with me that demo account is not more that a platform for us to getting to know the Forex market and just another tool to test our trading strategies. The real experience and the final tweak will come from the live trading itself before we get into real live trading. It means that after we get to know the Forex market and also the functions or facilities provided by the broker and thorough testing with the trading method through the demo account, we should move on and put our method, ability, skills and mental strength using a live account but with limited funds in it.
I always told my friends and others who asked my opinion about getting started in Forex trading that they only need not more than $1200 to $1500 as capital. That will include the learning cost which eventually it can turn up to no cost at all if they really understand the meaning of trading and investment. Please understand that the money is not payable to me but instead it is their trading capital. My advice is that they should put $1000 aside as their real live trading capital while $200 to $500 will be the live training capital.
What they should do first is learn all the basic about Forex, get to know and understand how the Forex market works and do some testing with their trading strategies on a demo account first. This could take as long as they like until they are confident and feel suitably prepared for a real challenge in Forex trading.
So, now the first part of Forex trading challenge will be how to implement and work our way within our limitation. The first rule of the challenge is, ONCE YOU BLOW IT, YOU'RE DONE. I always remind my friends that once they blow the live training account, they should really take a deep consideration whether or not to continue in Forex trading. The reason is simple. If you cannot work within your limited budget, what makes you think you can handle a bigger budget?
Working with limited budget as training could also train ourselves to be more discipline. It can help us to come up with a workable strategies so that we can last in Forex trading. With a demo account, if anything happen then we can just reset it by create a new account. However try do it to a live account. How much and how long you can stand by keep on topping up you account if the trade goes bad? Unless you are super duper rich, then it is fine. But if you are into Forex because for an improvement on your financial part, then you will likely making yourself look like a fool.
"Small fund means small profits." I would say that a little bit of bull in it. There will always be a way for us to maximize our profits with a limited budget. We are the one who should make the decision in trading and why not taking the first step by picking up the right risk to reward ratio for our trade. Maybe the profits could not match with a bigger account profits, but in term of percentage gain, it could be more or less the same or even bigger. After all, why should we question the profits now? This is just for training purposes remember? The most important value which we must take into account with live training account is how to manage our small funds using a specific strategy, discipline ourselves from over-trading and most importantly is to value each cent we earn from it.
Even $0.01 is a profit and I will take it if that is the best I can get. Believe me, if during a live training $0.01 profit is not good enough, just imagine how greedy you can get with a real live trading account. Sometimes greedy is good, but the "greedy" which I meant was it can expose ourselves to further negative circumstances which can destruct all the confidence, learning experience and most importantly is the profits which we should have taken.
We may take all the time we need with the live training account as long we didn't blow it. My recommendation will be around 1 to 3 months the max depending on our performance. In the end of the day this method will improve our mental strength and also our trading strategies. After all those 2 are the core element in successful trading. When we feel the confidence is flowing, backed with a steady performance and mentally prepared, then we can take a further step forward by topping up the training account to go into real live trading with the extra $1000 or more depending on how much we can afford.
So, is demo account necessary? I would still say it is necessary for us to try the demo account for learning purposes and also to familiar ourselves with the features or any extras the broker is offering. We could also use the demo account to test our trading system and also strategies. However, when it comes to training, it is recommended that we try to put aside a small fund from our initial capital so that we can learn and experience what is live trading all about.
-Fareed
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