One question I got asked recently at the website is what is the difference between demo and live trading? Part of the reason I was asked this is because their trading is going well on demo and that they are concerned that when they transition to live trading this will change..
Below is my response to this question..
In relation to feed there is no difference between a demo and a live trading account. So in other words if the demo account is the same account type as the live account type the broker offers then they are the same. The only exception to this is some market maker brokers ( or unregulated brokers ) can manipulate spread costs, reduce execution speed or give re-quotes.
I suggest traders to use a good reputation STP based broker. To find out what broker I use and why click here.
The main difference of trading live is Psychology..
When trading live real emotions come in that were not present when trading on a demo account. The reason for this is you are now trading real money and so risk is now real.
This does not however devalue the learning curve when demo trading and I highly recommend all traders to trade on demo account before going live. In fact, I suggest traders to not trade on a live trading account until they have been profitable on a demo trading account for at least 3 months or more. Trading on demo allows a trader to learn the skill of trading without risking real money such as entry refinement, money management, risk management and other important aspects.
How to not let Psychology effect you when going live?
( 7 ways of keeping emotions controlled when transitioning to a live account )
- Learn the trading strategy you are using and trading plan on demo before going live. Make sure you are not breaking any of the rules of that method or trading plan.
- Build trading confidence before going live.
- Trade with a small account when going live and over time increase account size as you get used to live trading. I suggest when increasing account size to do this in steps.
- Keep risk at a comfortable risk level that your account can handle, I suggest using a comfortable level of under 2%. Make sure that risk is low enough that your account can handle a losing streak.
- I suggest not watching your trade after setting up the trade such as after setting stop loss, management points and targets on that position. Watching a trade has little to no benefits to a trader. Instead watching a trade causes an emotional attachment to that trade which often leads a trader to close a trade earlier than the management points set on that position. Traders often refer to this as sitting on their hands when watching a position. It is easier to sit on your hands when you are not watching every second or pip of movement. Also watching a position is wasting your time when a trade has all the management aspects already set.
- Stick to the process of that method, remember this is the method that you traded profitably on demo, so do not let emotions when risking real money cause you to break the methodology trading rules.
- Do not risk money that you cannot afford to lose.
For more on Psychology ( video ).
Have any questions on this topic? Let me know by commenting below.