Some may say it will take about 6 months, some choose to repeatedly go back, some even suggest to ignore it completely. What is the right answer when it comes to the right duration in demo trading?
Before trading forex with a live account, you must use a demo account, irrespective of your strategy or technique. Whether it is price action, technical analysis, fundamental analysis, or other methods, trading a demo account is crucial in determining the best way to approach your forex trades.
The question many beginners tend to ask when they are about to trade with a demo account is how long will it take? The truth is there is no definite answer to that because it varies from one person to another.
In general, the duration of using a demo account can be divided into several groups, including:
- To learn how trading works: At least three months.
- To test a strategy: One to three months.
- To get familiar with a brokerage platform: A few weeks.
Basically, each purpose of using a demo account requires focus and different periods for maximum results. Why so? Let's learn below.
How Long Should Beginners Use a Demo Account to Learn Trading?
The time beginners need to use a demo account before trading with real money will vary depending on the individual. As a general rule of thumb, beginners should use a demo account for at least three months before trading with real money.
Some beginners may need more time, while others may be ready to trade with real money after three months. The most important thing is to ensure you are comfortable with the risks of trading before trading with real money.
However, there are a few general guidelines that beginners can follow to accelerate or shorten the duration:
- Start with a basic understanding of trading concepts.
- Set realistic goals.
- Don't be afraid to make mistakes.
- Keep a trading journal.
How Long Should Traders Use a Demo Account to Test Their Strategy?
Like beginners, the time traders need to use a demo account for testing strategies will vary depending on the individual and the strategy. However, as a general rule, traders could use a demo account from one to three months to test a trading strategy.
For instance, position traders who maintain trading positions in the forex market for weeks or months will need to spend more time on a demo account than intraday traders who only hold trading positions for hours or days.
However, even if the trader is interested in intraday trading with very short time frames, such as scalping, they will still have to trade on a demo account for a minimum of three months before opening a live account.
During this time, traders should focus on:
- Understanding the strategy.
- Backtesting the strategy.
- Adjusting the strategy as needed
Once traders are confident that the strategy works well, they can start using it in the real account.
How Long Should Traders Use a Demo Account to Check a Broker?
The time a trader needs to use a demo account to evaluate the quality of brokerage services can vary depending on various factors. As a general guideline, using a demo account for at least a few weeks can give traders a reasonable idea of a broker's quality.
However, it's essential to remember that a demo account may not fully replicate the experience of live trading, as there can be differences in order execution, slippage, and liquidity between the two environments.
During this time, traders should focus on the following:
- The speed of execution: Traders should test the speed of execution of the broker by placing a few trades. If the trades are executed quickly and without any, this is a good sign of the quality of the brokerage services.
- The spreads: Traders should also check the spreads offered by the broker. Spreads are the difference between the buy and sell price of an asset. Lower spreads are generally better, meaning traders will pay less in trade fees.
- The commissions: Traders should also check the commissions charged by the broker. Lower commissions are generally better as traders will keep more profits.
- The platform: Traders should also test the trading platform the broker offers. The platform should be easy to use and navigate and offer all the features traders need to trade effectively.
- Customer support: Traders should also test the customer support offered by the broker. If traders have any questions or problems, they should be able to get help from the broker's customer support team quickly and easily.
If a trader is happy with the quality of the brokerage services during their demo experience, they can switch to a live account and start trading with real money.
What Happens If You Finished on Demo Account Too Quickly?
The truth is that using a demo account to trade goes beyond ascertaining the success quotient of a strategy in a live market (although it is a major part of it). This is because there is also the aspect of getting to know who you are as a trader. A few things can happen if you take too quickly on a demo account. Here are a few of them:
- You may not learn the basics of trading properly. Demo accounts allow you to trade without risking any real money, which can be a great way to practice trading without financial risk. However, if you trade too quickly, you may not have enough time to learn the basics of trading, such as how to read charts, place orders, and manage risk.
- You may not be able to identify your strengths and weaknesses. Demo accounts allow you to trade without any financial risk, which can be a great way to identify your strengths and weaknesses as a trader. However, if you trade too quickly, you may not have enough time to learn your trading style and what works best for you.
- You may not be able to develop a trading plan. A trading plan is essential for success in trading. It helps you to define your trading goals, identify your trading strategy, and manage your risk. If you trade too quickly, you may not have enough time to develop a trading plan that is right for you.
If you are serious about becoming a successful trader, using your demo account wisely is essential. Don't trade too quickly, and take the time to learn the basics of trading, develop good trading habits, identify your strengths and weaknesses, and develop a trading plan. Following these tips can increase your chances of success when trading with real money.
What Happens If You Take Too Long on Demo Account?
You might be wondering why using a demo account for an extended period is necessary, especially if you only use a trading strategy with a short time frame. However, using the demo account for too long can also have some negative effects, including:
- You may become complacent. When you are not risking real money, getting lazy and not taking trading seriously is easy. This can lead to complacency, which can be a major obstacle to success in trading.
- You may become demotivated. If you are not seeing results on your demo account, it can be easy to become demotivated and give up on trading. Setting realistic goals for yourself and tracking your progress over time is essential.
- The market may change. The market is constantly changing, and what works on a demo account today may not work in the future. This is why it is important to keep up to date with market trends and to adapt your trading strategy accordingly.
- Missed opportunities. The financial markets constantly change, and trading opportunities may come and go. If you spend excessive time on a demo account, you might miss out on potentially profitable trades in real market conditions.
If you are serious about becoming a successful trader, using your demo account wisely is essential. Please don't take too long on it; make sure you are constantly learning and improving. Following these tips can increase your chances of success when trading with real money.
Once you have figured out the necessary aspects of trading by generating results on the demo account with consistent profits, you may be ready to transition to a live account.
The recommended time to spend on a demo account depends on the purpose for which it is used. For beginners, it is recommended to use a demo account for at least three months, while for strategy testing and knowing the quality of the broker, it is at least a few weeks to 1 month.
The good thing about the demo account is that even after you transition to a live account, you can always come back to it for re-evaluation if things do not go as planned once you move to a live account.
This is a common trend among forex traders now and then. They return to the demo account to adjust their trading strategies to get better results in the live market.
If you have difficulties looking for the right platform to demo trade, here are some of the best-recommended ones in the market.