CFD Demo Trading Using A CFD Demo Account
A CFD demo account is a must-have for anyone who is new to CFD trading.
CFD demo trading helps new traders gain experience and knowledge without losing money.
CFD trading is risky and requires a lot of market knowledge.
Even experienced traders can take advantage of it.
But what is demo trading? And what exactly is a demo account?
We’ll understand what it is and how it works first.
What Exactly Is A Demo Account?
To understand demo trading, we have to know about demo accounts first.
So a demo account is a trading account which allows users to trade without using real money.
This trading happens in a trading platform. An online trader provides these trading platforms.
A trading platform is a web-based platform, or a desktop app or a mobile app.
All transactions are virtual and bear no consequences to real-world financing. Brokers provide demo accounts for all kinds of financial instruments.
There are brokers for CFD, Forex, stocks, binary options etc. In the case of CFD demo accounts, users trade virtual CFD assets in a risk-free environment.
What’s Demo Trading Then?
The trading done using demo accounts is demo trading. This type of trading replicates real market conditions.
The demo market mimics the real market but uses virtual cash for trading.
There is little to no risk of losing money. The trading happens via trading software.
Most online CFD brokers offer demo accounts with an initial virtual deposit.
This trading balance can be limited, refilling, or completely unlimited. With unlimited demo balance, you can carry out demo trading for as long as you can.
You can open positions of large sizes with no financial consequences.
And as a result, you can trade with full confidence and prevent your emotions getting in the way.
Demo accounts are not just for novice traders. Top traders utilize demo accounts in a smart way.
They formulate all their strategies and try it out in a demo account. This way, they are able to find out the best trading strategy as well as not lose money.
Instead of performing trial and error in a real account, you can use your demo account for all kinds of testing.
History Of Demo Trading
The history of demo trading correlates with the advancement of the internet.
Before the internet became widespread, traders carried out transactions using pen and paper.
Only a few had access to stable and fast internet.
So online trading wasn’t very popular. As the internet rose in speed and availability, so did online trading.
Business universities and schools first implemented demo accounts.
So the students could get practical experience with trading.
Shortly after, online brokers started offering demo accounts as well. It gained in popularity and demand. Nowadays, it is a feature provided by most online brokers.
CFD Trading Demo
Now that we know the basics of demo accounts, trading and its history, we can focus on CFD demo trading. Let’s take a quick look at the definition of CFD first.
CFD stands for Contracts for Difference.
A contract between a buyer and a seller for exchanging stocks, indices, currencies etc.
The asset is not owned by either the buyer or the seller at any time the contract lasts.
If the price of the asset rises, the buyer makes money. If the price decreases, the seller makes money.
For CFD trading, using a demo account is more important than other financial trades. This is because CFD is one of the riskiest trading methods.
It is a high-risk high-reward way of trading. To succeed at CFD trading, a trader must have many years of experience as well as have deep knowledge of the market.
CFD brokers realize this and hence implemented demo trading as a part of their service.
Offering a demo account also encourages new traders to use their platform.
All it takes to open a CFD trading demo account is an email address, a username, and a password and that’s it.
Upon verification of the email address, the account is open to the trader. The broker provides the initial deposit to get started on trading CFD assets.
As long as there is virtual cash remaining in the account, traders can keep trading CFD’s. They can stop trading anytime they want.
Once the traders feel they have gained enough experience, they can trade in the live market.
Why Do Traders Need A CFD Demo Account?
As stated above, for CFD trading, a demo account is a must-have when starting. Since its leveraged based trading, there can be huge losses involved.
A trader can lose more than what he invested. The purpose of a CFD demo account isn’t to earn large profits. It is to learn how to do so.
It helps traders gain experience with the day to day CFD trading. The user should get a thorough idea about how the market works. This is the end goal of a demo account.
Another purpose it serves is to train patience and discipline.
Trading CFD’s is not some get-rich-quick scheme. It rather takes a lot of effort and time to make it a profitable avenue.
Practicing constantly on a demo account builds discipline and patience.
This makes the traders less prone to errors when they go for real trading. Persistent trading on demo accounts builds confidence and ensures success.
Advantages of Using CFD Demo Trading
We assume that using a demo of something before trying out the real system is always beneficial and sensible.
The same logic applies to CFD trading. Using a CFD trading demo account has several advantages:
It’s free to use:
One of the best features of using a demo account is that it is free. All online CFD brokers offer a free-to-use demo account.
Furthermore, brokers even provide an initial deposit to help traders get started. This encourages more and more new traders to try out CFD trading. It’s a win-win situation.
Experience and knowledge:
Traders can gain valuable experience by using a demo account for trading.
As stated above, trading CFD’s require a lot of trading experience so a demo account helps in that case.
Risk without consequences:
There are no actual consequences to lose money in a CFD demo account. Hence it completely eliminates any risk.
But when a trader is losing money in a demo account, he gets used to or understands the risks involved.
This comes in handy when dealing with real CFD assets.
The trading in CFD demo accounts mimics real-life trading environment. Experienced traders can experiment with different strategies.
This helps them to figure out works best for them. Through multiple testing, a beginner trader can become an intermediary. An intermediate trader can become an expert.
Helps to choose the right Trading platform:
Having a demo account from different brokers helps traders chose the best trading platform.
They can compare and analyze the features of the CFD before settling for one.
There are a lot of criteria involved when it comes to choosing a a trading platform. And a demo account is the best to find out which one suits you the best.
Boosts broker’s business:
Brokers provide a free demo trading platform to promote their live trading platform. If the trader likes the features of the demo account, he will most likely engage in trading with the broker.
Demo Account acts as a marketing tool for a broker and a testing tool for traders.
So it’s a win-win situation for all.
Disadvantages Of Using CFD Demo Trading
Using a demo account has more advantages than disadvantages. There are still certain disadvantages of using a demo trading account.
The money involved is virtual:
The money used in CFD demo accounts holds no real value. Traders can’t use the virtual cash for any real transactions.
Some consider this makes traders reckless when trading CFD’s.
The care-free nature when dealing with demo accounts should not carry over to real trading.
Unrealistic initial deposit:
Most CFD trading demo brokers offer anywhere from $10000 to $100000. This is higher than what real traders are investing.
Almost 70-80% of traders lose money from CFD trading. Smart CFD traders would consider investing far less.
In reality, you would not be having that kind of money to deal with.
Compromised trading environment:
In demo accounts the money is virtual and the initial deposit is high.
Novice traders are reckless and most likely will lose it all. This defeats the purpose of having a virtual environment.
Traders should practice their trading skills and not chase money. Demo account should be used as a learning tool.
No guarantee of success:
CFD brokers claim that their platform replicates real-life trading environment.
But success in demo account doesn’t necessarily translate to actual trading. The strategies successful in demo account may not work in a real trading scenario.
At the end of the day, it is a virtual environment within the software. Real trading is far more complicated.
What Makes A Good CFD Trading Demo PLatform?
A good and reliable CFD trading demo platform must have certain features:
Closeness to live trading conditions:
A good demo platform simulates real market conditions. So that traders can translate the experience from demo to real.
The range of markets offered:
The demo trading platform must contain a wide variety of markets to choose from. Range of markets should consist of forex pairs, cryptos, indices, stocks, shares, etc.
The range of platforms offered:
Traders want the trading demo on all platforms such as MT4, mobile, web so that they can trade on the go. Flexibility matters a lot to traders.
Easy to understand and use:
A new trader should not get intimidated by the user interface or features. A tutorial on how to use the trading platform should be included with the demo account.
Provide statistics and charts:
Traders should be able to access their past trades. There must be graphs and charts that summarize their activity. This helps them analyze their mistakes and correct them.
Difference Between A CFD Demo Account And A Live Account
Demo accounts claim to mimic the real market environments. But there are some key differences between live and demo accounts.
Virtual vs. real funds:
This is the greatest difference between a demo account and live account. Demo trading deals in virtual cash. It has no real value. You cannot withdraw it and is meant for practice trading only.
In a demo trading account, there is no risk involved. Bad decisions don’t have any real meaningful consequences.
In live CFD trading, every trade that you perform must be exercised with caution.
The difference in position size:
In a demo account, the position size is the same as the requested size.
In live trading, this isn’t the case. There are competitors who order the same financial instrument as you. This will result in you getting only get a fraction of the requested size.
The CFD market is always unstable and changing. There is always a chance for the expected price and actual trade price to be different.
This is known as slippage and happens in live trading. Demo accounts carry out orders immediately without any faults.
When transitioning from demo to real, one must be careful about delays and lags in order execution.
A CFD trading demo account is a simulated trading platform offered by online CFD brokers.
It emulates real market conditions without using real money. Demo trading has become popular with the growth of internet speed and availability.
CFD’s are very risky to trade and that’s why having a demo trading platform helps out new traders.
It has certain advantages such as having no risk, free to use, and able to test out different strategies.
There are certain disadvantages as well. They are the difference in trading conditions, risk, and an unrealistic initial deposit.
A good CFD demo trading platform possesses certain features. Closeness to real market conditions, the range of markets and platforms and easy to use are a few.
They differ from live trading as there is no real money involved and there is no risk and slippage.
In conclusion, CFD trading demo is a useful tool for both new and experienced traders. Appropriate use of it can help achieve success in live trading.