New investors are always smart to begin their investing, with a Practice or Demo Account.
A problem with demo trading, is the psychological factors, which must not be ignored. When you are trading with your own money, there exists the fear of losing money. This causes many investors and traders to hesitate and over think trading decisions.
Instead the new day trader opens up a demo account to test out their idea’s. They soon start to make non calculated “long shot” trades, that they would never make with real money. This gives them the false confidence to start trading a real account.
Proper usage of a demo account, is to test out the brokerage firms trading software.
- Get comfortable with the trading platforms features.
- Explore the various CFD order types.
- Learn how each underlying asset is priced and leverage amounts.
- Test the system for slowness or latency in execution of your trades.
Remember, paper trade the same way you would in a live account with real money.
There are always the funny stories about a new trader, that thought he was trading on a demo account, to then find out he was actually on a live account.