Getting started as a trader can be exciting, but also daunting. Trading is a different proposition than investing for long-term growth. With long-term investing, you put your money into assets and – typically – leave it there for years (until you need it for retirement, for example). It’s good practice to check in on investment performance now and then and to make any tweaks that are needed. But generally, long-term investors can take a fairly relaxed approach to investment management.
Trading, on the other hand, involves short-term strategies to maximise returns on a quarterly, monthly or even daily basis. The idea is to make an immediate return from market fluctuations, for example by buying assets when the price is low and selling them at a higher price shortly after. It requires dedication and vigilance. While those that get it right can turn a profit, it can be a high-risk approach and isn’t for the fainthearted or those with no investment experience at all.
If you’re considering becoming a trader but lack experience, a demo account for trading can help.
Demo accounts are offered by a number of online investment platforms to let investors learn how things work and to practice trading with virtual money. You might hear using a demo account referred to as “paper trading”.
Demo trading accounts allow those new to trading to get a feel for trading markets and technology. They can make mistakes in a safe environment, without putting their own money at risk. They can also be used by more experienced traders that want to try out new trading strategies or start trading in different markets.
A number of online trading platforms offer some form of demo account. So all you should need to do is pick a provider that offers one and sign up. With some providers, you’ll need to create a regular account (most offer this for free) and then set up the demo account. Others will let you sign up directly to the demo account.
Yes. Unlike “live” accounts, which you’ll pay some level of fees and charges to use, demo accounts shouldn’t cost you anything or risk a penny of your own money.
Bear in mind that trading platforms don’t offer demos out of the goodness of their hearts, though. They provide them as a learning tool because they want demo account users to ultimately transition to a live account that will make the platform money. If, having tried out trading on a demo, you think you’re ready to trade for real, proceed with caution and start off small. And remember that you’re under no obligation to make the shift to a live account quickly or at all. If having tried it out on a demo, you decide trading – or trading in a certain market – isn’t for you, then walk away.
Check for any time limits on how long you can use a demo account, too. Some don’t have automatic limits, though they may expire if you don’t use them for a while. Others may expire automatically after 30-90 days.
The details of how demo accounts work will vary between trading platforms. As a general rule, you’ll go through the following steps.
You might have noticed we’ve mentioned strategies a couple of times now. Even with a demo account, it’s worth going in with a strategy to try out. Even if you get lucky with trial and error in the short term, it’s unlikely to work in the long term. Short selling is one example of a trading strategy, but there are others. The trading platform you use is likely to have advice guides on the different trading strategies.
Not every trading platform offers a demo account, but a number do. If you’d appreciate the chance to practice before you start trading, it’s worth looking out for a platform that has one. This might apply particularly if you’re new to trading, if you want to try out new strategies or if you simply want to familiarise yourself with how a platform works. Trading platforms that have demo accounts include Capital.com, eToro, IG and Trading 212.
To make comparing even easier we came up with the Finder Score. Costs, features, ease and range of investments across 30+ platforms are all weighted and scaled to produce a score out of 10. The higher the score the better the platform – simple.
Read the full methodologyAll investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Making use of a platform’s demo trading account has several benefits, linked to the ability to try out approaches without risking your own money. They include the following:
Valuable as practising on a demo account can be, it’s not a direct replacement for the real-life trading experience. For example, demo accounts may do the following:
Think of using a demo trading account as a bit like going on a first aid training course. Practising resuscitation on a first aid dummy could prove invaluable if you ever need to apply those skills to save someone, but that practice can never replicate the reality of pounding on a human being’s chest.
OK, so that’s an extreme example, but hopefully, it gets the point across. Demo accounts can be great practice tools for new and experienced traders alike, but – for the reasons we’ve highlighted above as disadvantages – your experience with a demo may be very different to your experience when you trade for real.
Long story short, don’t assume that just because everything’s gone swimmingly during practice, you’ll immediately do brilliantly when your own money is at stake. Don’t be so overconfident that you take too many risks, and also make sure you have coping strategies for when things don’t go as well as hoped. Remember, it’s the nature of investing to be risky and you’ll probably lose at least some of the time.
If your chosen trading platform offers a demo account, it’s well worth making use of it, especially if you’re new to trading. It could even be one of the factors that affect your choice of platform in the first place, particularly if you want to be able to try trading in different markets and using different strategies without putting your own money at risk. Just remember that trading simulations can’t completely replicate the experience of trading for real. Be prepared for this if and when you make the shift to a live account.
| Response | 55+ | 45-54 | 35-44 | 25-34 | 16-24 |
|---|---|---|---|---|---|
| No | 66.76% | 59.65% | 48.31% | 34.78% | 33.01% |
| Yes | 33.24% | 40.35% | 51.69% | 65.22% | 66.99% |
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