Demo account
Also called Practice account, Paper trading account, Virtual trading account, Simulated trading account
A demo account is a practice trading account funded with virtual money. You trade live market prices without risking real cash, and any profit or loss is not real.
Brokers offer it free so you can learn the platform and test a strategy before you deposit. It lets you make your first mistakes for free. The risk is learning the wrong lessons. If your demo trades don't match how you will trade with real money, the results will mislead you.
What you can and can't learn on a demo account
A demo account shows you prices from the real market. Charts, order types and stop-loss behaviour usually work the same way as on a live account. That makes it a good place to learn how to place, change and close an order, and to test a strategy's rules over many trades. Price moves are counted in pips: a pip is the standard unit of price movement, and on EUR/USD it is the fourth decimal, 0.0001. Every trade also pays the spread, the gap between the buy price and the sell price.
Some things can't be practised on it. Real money brings fear and greed, and a demo has neither. On demo you let a losing trade hit its stop. Live, you are tempted to move the stop further away.
Demo orders may also fill more smoothly than live ones. In fast markets, live orders can suffer slippage, which means being filled at a worse price than the one you clicked. Live, you may also get a requote, where the broker offers a new price because the one you clicked is gone, or have an order rejected. On demo these may be rarer.
- –Market prices and charts
- –Order types, stops and targets
- –Pip value (if account currency matches)
- –Margin needed per trade (if leverage matches)
- –Fills, spread and slippage may differ
- –Requotes and rejected orders may be rarer
- –No fear or greed in your decisions
- –Compare the demo and live spread on the same pair at the same time
- –Place the same smallest-size order on both and compare the fill price with the price you clicked
- –Check that the order window shows the same pip value and margin on both accounts
- –Log every stop you move on demo as a rule break
Small extra costs like these add up over many trades. Here is an illustrative example. You take 50 trades at 0.05 lots. A lot is the unit of trade size: 1 standard lot is 100,000 units (a micro lot is 1,000), so 0.05 lots is 5,000 units and one pip is worth $0.50 (5,000 units × 0.0001). On the live account, each trade pays 1 pip more in spread than on demo and loses another 0.5 pip to slippage. The chart below works out what that costs.
On a $1,000 account, that is $37.50 ÷ $1,000 × 100 = 3.75% gone that the demo never showed you. In this example, if your demo profit over 50 trades is under $37.50, expect the same trades to lose money live.
If a strategy only works because of the fills or spreads you saw on demo, assume it fails live until a small live test shows otherwise.
Setting up a demo account on your trading platform
You usually open a demo account from your broker's website or from the login screen of your trading platform. You choose the demo option instead of a live one. The form typically asks for:
- Starting balance. Set it to the amount you really plan to deposit. The next section shows what goes wrong if you don't.
- Leverage. Leverage lets you open a trade bigger than your deposit, and margin is the part of your money the broker sets aside to keep that trade open. Pick the same leverage your live account will have, or the margin maths won't match.
- Account currency. Your pip value and results are counted in this currency, so use the one you will fund the live account in.
- Account type. If the broker offers several live account types, pick the demo version of the one you will use. Spreads and commissions can differ between types.
Once you are logged in, the platform labels the account as demo, usually near the account number or balance. If you can't see a Demo label, assume you are on a live account and don't place a practice trade until you have checked.
How an oversized demo balance distorts your risk
The mistake that distorts demo results most is trading a balance you will never have. Here is an illustrative example with round numbers. Say your demo starts with $100,000, but you plan to open a live account with $1,000. You buy 1 standard lot of EUR/USD (100,000 units) with a 20-pip stop-loss.
The calculation above shows the same loss two ways. On the demo it is 0.2% of the account, which feels like nothing. On the live account it is 20%. A strategy that looked calm on demo would take a fifth of your real money in one trade.
To fix it, trade the demo at the size you will use live. On a $1,000 account with 1% risk and a 20-pip stop, that size is 0.05 lots (5 micro lots).
Checks before you move from demo to live
Decide on these tests before you start, and judge your demo record against them:
- Fixed sample. Pick a number of trades in advance, for example 50. Judge the results only after you reach it, not after a lucky week.
- Rule-following. Count the trades where you broke your own plan, such as moving a stop or entering without a signal. If you broke your rules on more than 2 of 50 trades, the results show your mood, not your strategy. Run another 50 before going live.
- Live sizing. Every trade used your planned live size.
- Worst run. Write down your longest losing streak in money. Ask yourself whether you could sit through it with real cash.
- Small first step. Start live with the smallest size your account allows. Expect your results to drop at first while you get used to real risk.
FAQ
Can I withdraw the profit I make on a demo account?
No. The balance is virtual, so there is nothing to withdraw. Some brokers run contests on demo accounts, but the prize comes from the contest rules, not from the account balance.
Do demo accounts expire?
Many brokers close demo accounts after a period without use, or after a set time. The rules vary by broker, so check the account terms. Keep your own record of your demo trades so you don't lose your results if the account is closed.
Can I practise day trading on a demo account?
Yes. Practise during the exact hours you will trade live, because spreads and speed change through the day.
Can I reset my demo balance after a big loss?
Often you can, by topping it up or opening a new demo. Before you do, write down why the account blew up. A reset that skips that review teaches you to treat losses as free.