Importance of a Copy Trading Demo Account
Importance of a
Copy Trading Demo Account
Demo accounts, we all have these, but nobody actually wants these.
What is the point of playing monopoly? It is just a waste of time, one may wonder.
Traditionally, demo accounts had some utility for Forex traders who wanted to improve their trading skills.
By trading paper money, you could have tested a trading strategy, made tweaks in a live environment without risking any real capital, and at the end of the day, those sort of practical application justified using demo accounts.
However, since copy traders do not actually trade the market themselves, one may wonder if there is actually any good reason to keep using demo accounts.
After all, past performance does not guarantee future results, so is there any reason why should you rely on the 30-day performance of a signal provider that you followed with a demo account?
Why You Should Use a Copy Trading Demo Account Reason #1: Test Drive Your Own Strategy
When you are demo trading a signal provider, you are not only testing the effectiveness of the said signal provider, but you are also test driving your own strategy.
If you do not have a strategy to build a copy trading portfolio, head over to download our Copy Trading Essentials e-book, read it, then move on to reading the rest of this article!
A demo account will help you reduce the gap between your expectations from your copy trading strategy and the reality.
When you are trading the market yourself, the performance of the strategy would only rely on the market condition and your own ability to execute the strategy.
But, when you are testing a copy trading strategy, finding the right signal providers who can help you execute the strategy is more important.
You may have developed a great copy trading portfolio idea, but unless you know how to find the signal providers who fit your criteria, your chance of being a successful copy trading may turn out to be slim at best.
So, embrace the paper money and treat it like real, till you are confident to pour your hard earned money into a live account.
Why You Should Use a Copy Trading Demo Account Reason #2: Test If the Signal Provider Does What He or She Says
Once I found a signal provider who had the most intriguing strategy description.
Oh my – I said – if this guy trades like what he says about this strategy, it would make me a millionaire in no time.
Also, this signal provider had a very good track record, so I jumped the gun and started following him with my live account.
Soon I realized, there is no correlation between what he says about his strategy and what he actually does during trading.
This signal provider would open trade trades based on what he said in the strategy description, but he will not cut losing trades.
Once the trade turns, he will quickly take 10 or 15 pips and move on the next trade.
It turned out to be a complete nightmare and I wished I demo traded this signal provider before losing my month’s grocery budget.
Do not make the same mistake as most novice traders, embrace that demo account and demo for at least a month before following a new signal provider with your live account.
Why You Should Use a Copy Trading Demo Account Reason #3: Learn to Deal with Stress
If you are trading with funds that you cannot lose, copy trading could turn out to be a source of stress.
When I first started trading, I found that trading a $50,000 demo account really had no psychological impact on how I was conducting my trades.
However, once I opened a demo account with $2,000, which was near to my live account balance, suddenly I felt that adrenaline rush, which I felt with a live account.
So, yes, copy trading a demo account with a realistic amount of paper money can help you simulate the stress level of copy trading your live account.
Open a copy trading demo account with the exact amount that you intend to invest in your live account and try to imagine you are following the same signal providers as you would have followed with your live account.
If you feel comfortable with the daily winnings and of course, losses, then you are ready to deal with the everyday stress of trading with real money.
Trading foreign exchange carries a high level of risk, and may not be suitable for all investors. The high degree of leverage available can magnify profits and as well as loses. You can lose more than your initial deposit. Before trading, please carefully consider the risks and inherent costs and seek independent advice as required. Past performance is not an indictor of future results.