To Demo Trade Or Not?

This is always going to be a divisive topic.

I recently came across an article which made a pretty good case against demo trading, and I actually agree with the article.

In my opinion, demo trading is only useful is some ways:

1) To get you acquainted with the nuts and bolts of the particular instrument you’re trading.

Some instruments like options, futures, and forex require a lot of familiarisation. For example, for options you have to get familiar with calls and puts, DTEs, strike prices, the Greeks, option liquidity, etc.

2) To get you acquainted with the mechanics of the broker platform you’re using.

Every broker platform is different and has a learning curve. It requires multiple trades to get totally familiar with each platform. Ultimately you want to be so familiar with all the features/functions of the platform that you can place trades super quickly without having to fumble for the right buttons.

3) To help you get familiar with executing your strategy.

If you’ve got a particular strategy, it’s good to use a demo trading account to execute your strategy in a real-time, real-world environment, using actual market prices and movements. It helps you see the results of your execution in a hyper-realistic environment. It is always good to see through the entire process of an actual trade from entry to exit, and to do it multiple times to get familiar with the full process. Honing your entry point is one thing, but knowing how long to hold the trade, whether to take off some profits along the way, whether to move up your stop-loss along the way, and where exactly to exit the trade are skills which you will need to master as well.

To me, these are all the benefits of using a demo trading account.

But apart from the practical, nuts and bolts aspects of trading, I do not believe that a demo account helps you become a better trader at all, because a large part of being a good trader actually pertains to the emotional and psychological aspects of trading instead.

Demo trading does not prepare you to have the mindset of being an actual trader.

Demo trading does not train your trading discipline.

Demo trading does not instill in you the importance of proper risk management.

Demo trading does not give you the feeling that there are actual stakes involved in whatever you are trading.

Demo trading does not prepare you for the feeling of suffering a string of actual losses.

I like the analogy of learning to drive a car.

Demo trading is like learning to drive using a driving simulator.

It’s completely fine if you make mistakes. No harm will befall you whatsoever.

If you make a big enough mistake, all you have to do is press the “reset” button and you’re back to where you started.

It’s great when it comes to giving you a sense of being behind the wheel, and getting familiar with the mechanics of driving a car, but that’s about it.

However, trading with a real account is like sitting behind the wheel of a real car and learning to drive on a real road with actual traffic.

The mindset is completely different.

Which is why I personally prefer trading with a real account once I am completely familiar with the instrument I’m trading, the strategy I have in mind, and the full mechanics of the broker platform I’m using.

Of course, just like how you would drive real slowly when you’re learning to drive in a real car, I would also trade in really small amounts when I’m trading a real account.

You can never be too careful when driving, or when trading.

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