Demo Trading vs Live Trading: Are They Exactly the Same?

In this article, I will talk about the demo trading and its importance. I see that some traders believe that demo trading is not a good practice because you know that you are trading with the demo money, and so you don’t trade with discipline. They believe demo trading causes the novice traders not to learn to trade with discipline, and this will be ended to failure eventually. When you know you are not trading with your real money, then you don’t care to lose, and so you can make all the possible mistakes, like taking any weak and strong trade setups you locate; taking positions while there is no trade setup; over-trading etc. It will be a disaster if these bad actions become a habit in you.

Do I agree with this?

This is true only when you are not a serious learner and you are practicing to trade just to see what trading is all about. So you open a demo account and you take some positions to see how it works. You don’t care if you lose.

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However, when you are serious about becoming a professional and full time trader, and when you want to make a living through trading, then you should behave completely different.

Before you open a demo account and start demo trading, first you should learn everything you need to know: Become a Profitable Forex Trader in 5 Easy Steps

First, complete your knowledge and then start demo trading. Spend enough time to follow the videos and articles I have listed in the above article.

If you start demo trading while you are not ready yet, you will only make yourself confused, frustrated and disappointed. Do not let your mistakes make you think that you cannot make money through trading.

Now let’s say you have learned everything you need to learn, and now you are ready to gain experience through demo-trading. This is a very important stage that if you don’t pass properly, you will not become successful with live trading.

Aren’t you here to make money through trading finally? If the answer is yes, then you should pass all the stages very carefully and patiently, otherwise you will not get any good results. I cannot emphasize on this more. It is very important.

Are you done with the above articles?

A Few Things about Demo-Trading

1. Take the demo trading as serious as possible. Forget that it is the demo money and nothing happens if you lose. You can blow up your live account as easy as you blow up a demo account. So when you open a demo account, forget that it is a “demo” account. Treat it as a live account and your real money. Do you like to lose money with your live account so easily? If not, then do not lose with your demo account so easily too.

The discipline you need for trading is something that you have to “build” in yourself. You have to “build” it on your own. And demo-trading is the foundation of your “Discipline Building”. If you trade carelessly with your demo account, you will do the same with your live account too. If you take positions with your demo account while there is no strong trade setup, you will do the same with your live account too. If you over-trade with your demo account, it becomes a habit, and you will do the same with your live account too. If you…

Conversely, if you forget that you are “demo” trading, and you take your demo account as serious as your live account and real money, and you wait for the strong setups only, and you do not over-trade and you don’t take too much risk, and you set the stop loss and target properly, and you care about the losses as you care about losing with your real money, then the discipline you need to have to make money through trading will be built and matured in you, and you will be successful with your live account definitely.

2. Make sure to keep on demo trading and not to open a live account as long as you have not been able to repeat your success with your demo account.

Does it make sense to open a live account and trade with the real money while you have not become able to make money with the demo account yet?

If it doesn’t make sense, why are you trading with a live account then?

You think live trading is different? It is not. When you lose with demo account, you lose with live account too. If you are not knowledgeable, experienced and disciplined enough to make profit with demo account, you will not make profit with live account too.

If that sounds like you, then don’t be your own enemy and stop trading with your live account. Take a few steps back, complete your knowledge, demo trade to gain experience and master your trading system.

You will always have time to open a live account and start live trading. Don’t do it when you are not ready yet.

3. Your demo account size has to be the same as your live account. I mean, if you are supposed to open a $1000 live account, then practice with a $1000 demo account too, and do not open a $100,000 demo account for example. This helps you behave with your demo account exactly as your live account. This helps you take your demo account serious. But when you open a one million dollar demo account, you know that you are kidding yourself, and so you won’t take it serious.

Keep in your mind that your demo account has to be treated exactly as your live account. Although you open a demo account for free, but it is not “free” in reality. You are spending your time on it. You are building your experience and discipline with it. So not only it is not free, it is even too expensive and valuable. It is the “foundation” of your business.

Demo Trading versus Live Trading: Are They Exactly the Same?

Most novice traders think demo and live trading are the same and a live account should behave exactly like a demo account. If you are still demo trading and you are getting ready to open a live account, read the below words to be aware of the differences of demo and live accounts, and demo and live trading.

Demo and live accounts, and so, demo and live trading have two main differences:

1. Trader Side Differences:

Most traders rush to open a live account after a short period of demo trading and making some successful trades. There is no doubt that everybody loves to make real money as soon as possible. But, having few successful trades in a demo account doesn’t mean that you are ready to start trading with real money. Working with real money creates some harmful emotions in novices traders. These emotions cause them to behave completely different when they trade with a real account. There is more fear and greed in novice traders when they trade with a live account, whereas they treat the demo accounts more like a computer game.

If you want to trade a live account without any emotions, first you have to demo trade at least for six consecutive months after learning a trading system. You have to master your trading system through demo trading. Then, if you can trade profitably for six consecutive months, it means you have almost mastered your trading system and you are ready to continue your practice with a small live account.

To become able to trade with your live account without any emotions, you have to take your demo account as serious as a live account. You have to forget that it is a demo money. If you are supposed to open a $5000 live account in future, then you should practice with a $5000 demo account too. Working with too big demo accounts, for example a $1,000,000 demo account means you are not taking it seriously, and you are playing with it just for fun. This is a big mistake that a novice trader can make. Your demo account and demo trading journey is as serious as practicing with a flight simulator for a student pilot. If he doesn’t take it serious and doesn’t become able to work with a flight simulator properly, he will not be able to fly with a real plane.

When you master your trading system through demo trading, you can trade with a small live account, emotion free, exactly like what you have been doing with your demo account.

The most important advice here is that don’t rush to open a live account as long as you are not a consistently profitable demo trader yet. If you are able to repeat your success for six consecutive months at least, you can open a small live account and “keep on practicing” your system with it. When you can trade with this live account exactly as your demo account, and you repeat your success for six consecutive months, you are a junior profitable trader.

What next?

2. Broker Side Difference:

Let’s say you have been able to repeat your success with your demo account for six consecutive months, and now you want to open a small live account. Will your live account behave exactly the same as your demo account when you want to open and close positions or there are some differences?

If you open a live account with a market maker broker, which is what I don’t recommend at all, then you should expect to see some strange events like sudden increase of the spread to hit your short positions stop loss (stop loss hunting), slippage, re-quote, off-quote and… . These are the problems you can be faced with, even when the market condition is normal and there is no news release. Therefore, it is recommended to find a true ECN/STP broker who is honest and allows the clients to know everything about their liquidity providers, commission etc.

What if you open a live account with a true ECN/STP broker? Can you expect your live account to work exactly the same as your demo account?

Most novice traders expect to see exactly the same performance with their live accounts, but this is not possible. When you demo trade, your orders don’t have to be transferred to a third party. You are trading with the demo money on the broker’s servers. Indeed, there is no real order in demo trading. Although you analyze the market and locate strong trade setups, it is just some numbers that are displayed on your platform when you click on the buy/sell buttons. You can take from 0.01 to 1000 lots positions without any problems, because there is no difference between a 0.01 and 1000 lots position in demo trading. They are both fake positions.

However, when you trade with a live account with a true ECN/STP, they have to transfer your orders to a third party which is called liquidity provider. When you click on the buy or sell buttons, your brokers receives your orders on its server first, and then routes your order to the liquidity providers servers through the electronic bridges that connect the brokers servers to the liquidity providers servers.

Although all the stages of this process is done electronically and automatically, it still takes time for the liquidity provider to receive your order. And, the price can change during this time. By the time the liquidity provider receives your order, the price can be much different. Liquidity providers execute your orders with their own price, not the price you request. If the price is too far from the price you requested, you can receive off-quote error. This is what you see even with a demo account, when there is a news release and the price is changing like crazy, because even with a demo account, the broker has to receive and execute your orders on its demo servers, and the price can be different when the broker receives your orders.

So, some slippage is normal when you trade with a true ECN/STP broker. Also, you should not expect your pending orders, including stop loss and limit orders to be executed exactly where you set them. They can be close, but not exactly the same as you set.

To have a better performance, some brokers do two things:

First, they connect to several liquidity providers at the same time. When they receive your order, their system checks the price that each liquidity provider is offering, and chooses the liquidity provider that is offering the best price which is closer to the price you requested. This cannot eliminate the slippage completely, but it can lower it significantly.

This method has another advantage too: Your orders will always be distributed among several liquidity providers. Therefore, none of them will be able to know your account as a winning trader, because not all of your winning positions will be taken with one liquidity provider. This prevents the liquidity providers from planning to manipulate your positions.

Second, most strong and good ECN/STP brokers hide the pending orders from the liquidity providers to prevent them from slipping the price when the pending order wants to be executed. As soon as the price reaches the pending order price, broker sends the request to the liquidity provider that is offering the best price.

Demo and live trading cannot be exactly the same from brokers and liquidity providers point of view, but they can be exactly the same for you as the trader.

Taking a position with a live account is like referring to a bank branch and buying a currency against another one. They offer you their own price; you have to spend time to do it, and you have to pay the fees and expenses. The difference is that in online currency trading, all the stages of this process is done from home and through computer and the Internet. So live trading cannot be exactly the same as demo trading. This is what all professional traders know and are used to.

In spite of the technical differences that demo and live trading has, you can trade with your live account exactly the same as your demo account, if you practice enough with your demo account to master your trading system first, and then you open a small live account with the money you can afford to lose when you have already mastered your trading system and have built your confidence and discipline: Become a Profitable Forex Trader in 5 Easy Steps

How to Sign Up for a Demo Account on MT4

Most of you know how to sign up for a demo account on MT4, but many others ask about it. So I preferred to have a post on this topic.

I hope you have already installed the MT4 platform on your machine:

1. Open the MT4 platform.

2. Refer to “File” menu at top left side of the platform.

3. Click on “Open an Account”.

4. Click on the “Next>” button.

5. Choose “New demo account” and click on the “Next>” button.

6. Complete the form, and check the “I agree to subscribe to your newsletter” checkbox and click the “Next>” button.

7. Save your login, password and investor (read only password) and click on “Finish”. MT4 will login to your new demo account automatically and you can start trading.

You can sign up for another demo account if the current account is expired or wiped out. All your demo accounts will be listed on “Navigator” and under the “Accounts” menu (press Ctrl+N to open the navigator). You can have unlimited number of demo accounts with the same broker.


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Categorized as Trading

By The LuckScout Team

I don't believe in luck. I believe in sweat. The more you sweat, the luckier you get.

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2 years ago

Course Different demo just account for learn how does it work and increase skill analysiz also money can not wd and live account its real money its can earn money in real time also can do wd

Emmanuel Enya
Emmanuel Enya
2 years ago

I completely agree with this article

2 years ago

Demo trading gives you the right atmosphere for actual trading and is not a waste of time at all. I have somehow mastered live trading but still use my demo account every so often to refresh and keep the fire burning.

Edward Duffy
Edward Duffy
2 years ago

Thank you for your words of support and I am looking forward to this journey and I am enjoying the dialogue so far.
Being in Australia can be a disadvantage for a lot of things and yes I am trying to trade the daily timeframes and my issue is really that I am struggling to identify entry opportunities when they present themselves but I am persevering and I am sure I will get there soon.
I will continue to read your tips and it would be good if there was someone in the group that may be able to provide assistance.

Edward Duffy
Edward Duffy
2 years ago

I have been trying to trade for some time and I am still trying to find a strategy that fits in with my work. It is a little difficult at times as I am in Sydney and the markets are closing when my work day is starting. I have recently opened a new demo account to test a new strategy as I do not want to lose the cash that I have with my current broker all be it a small amount. I have spent quite a deal of money over the years to try and provide an easier life for my family and I but unfortunately I am yet to find it.

2 years ago

good points for traders.

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