I have seen hundreds of posts recommending that everyone starts with a demo account until they can prove they have an edge and can trade profitably. Some members have even been trading on a demo account for more than two years - you can get a diploma spending two years on an education. The reason I ask is that most members do not consider the opportunity cost of the time each of us spends learning this subject of trading in general, or Forex trading in particular. For sure, most members will spend a minimum of 200 hours (that is only 5 x 40 hour weeks) trying to learn how to be profit-making, but when all that time is spent on a demo account, I am challenging whether it is money well saved instead of money well spent.
I will elaborate. If you earn $25 an hour and you have spent 200 hours doing the School of Pipsology, setting up a broker account, making an outline and detailed trading strategy, then a plan, then opening the demo account and placing a minimum of 200 trades to calculate your edge and theoretical profit, it has cost you $25 x 200 = $5,000 in lost opportunity cost. When you look at it that way, would it not be equally smart to allocate just 10% of that opportunity cost and open a $500 trading account, be really careful and just trade at 1/2% of bank and know that your trading plan, trade journal, entry logs, exit reasons and trade management can all be improved in parallel instead of waiting two years to find out if this is really for you?
Although I don’t agree with your maths, I do agree that opening a small real account is far better for ones learning curve than demo trading. First thing one notices is you get switched to a different serve, your brokers “B” book server. The data feed is different to the demo and you’ll start to learn what slippage and order fill rate means. Secondly losing $10 from a $100 real account is far far more painful than losing $1000 from a $10000 demo. And finally, you’ll know you are doing something right when your broker rings you up and says they are switching your server again. Means your making money and he has put you on the “A” book.
I would however recommend a demo account for the first 4-6 weeks simply to learn the features of your brokers platform before applying real funds to ones account
You raise a very good point and your reasoning is valid.
I firmly believe that you cannot fully learn trading a demo account. The reason being is that with a demo account you have no real skin in the game. It’s just fake money. So if you lose all your account you have lost nothing except maybe a little pride.
When there is real money involved that invokes far more of the emotional aspects of trading. The fear of losing money is a powerful emotion that a lot of traders cannot handle and unfortunately losing is a fact of trading so that emotion has confronted at some stage.
What you have suggested is a great idea because it allows you to not only experiment with strategies on the demo but then hopeful take what works and make a few bucks.
If you are a newbie or want to test some strategy, you must go with the demo as it is risk-free and no real money involved. It gives you a real-time experience of trading and also provides confidence which helps you in doing live trading. If you are an experienced trader or you just want to invest in forex, you can go with a micro or cent account with less deposit amount.
Yes. I completely agree with you. A demo account is the best option to justify yourself as a trader. You have to be sure about your trading style and strategy. You can check your style and strategy in the demo account.
Thanks for the very detailed explanation Mondeoman! Very clear and you really raised some valid points. I’m a believer of demo trading, but I also know that staying on demo for a really long time could cost you some opportunities.
Determining your trading style (scalp, day trade, swing trade, etc)
Analysis and Strategy creation
Backtesting & Forward Testing
Understanding and formulating a risk mitigation strategy
Implementation
Putting strategies to work
Psychology management
Monitoring actual results and adjusting your trading accordingly
For the first 2 aspects using a demo account is advisable. However, once these have been ironed out I would suggest moving to a real funded account as soon as possible since psychology plays a big part in trading and unless you can learn to control your fear you will never be able to trade profitably.
The key, while you’re new to trading, is to limit your risk to the least amount possible. That’s one of the reasons that I suggest opening an account with Oanda since it allows you to trade with a single unit instead of being forced to trade with 1,000 units. Learn to accumulate positive pips before you increase your risk.
I’m a beginner in this filed and every trader as advised me to start in demo before going live, why is demo so important even when traders who trade live say its not the same ?
Well, i can see everyone agrees with you fellow trader, but honestly I think it is quite subjective. It depends on how you view it based on experience. When I started out, I was advised to trade with a small account. I did and it was a bad idea. I blew the $100 account in 1 day and went straight back to demo the following day. I took that demo account as serious as you would swear my life was on the line. Lucky enough, I was broke so I couldn’t afford to deposit any real funds, such that it took me about 2 years to finally move a real account.
Trust me, I had my strategy polished right to the clit by then, emotions at check, if not at bay, knowing what to expect from the market every time I see my setups, knowing when to sit on my hands, maximized my R;R and letting my trades cook…etc. I then made a $200 deposit and traded it with the confidence I have never had before. I just treated it as if I was still the demo account I traded for two years.
So, personally, the demo account played an enormous role in my trading career. There wasn’t much difference between the two because I gave the demo account more attention as if it was real, perhaps because I so much wanted to figure out how I blew my account in the first place. Plus I was broke, so the only way out of my situation was to master the game.
As a beginner yes a demo account can be preferred but at the same time i also believe that staying on a demo account for a long time can cost you some great opportunities.
Well, I agree with you. I am new to trading so even I used a demo account initially as suggested by many. Trust me, it’s not the same as trading on a real account as there are no emotions involved while practicing on the demo account. I would suggest that one should directly start with a real account by trading with lesser funds
I think its down to each individual, I believe a demo account should be used as a bare minimum for a couple of months whilst learning (school, YouTube, books) and becoming familiar with placing trades, stop losses etc.
I really don’t understand how you can blow a $100/$200 account in a day though - if you manage this then you aren’t using risk management which is one of the basics for me and definitely should not have graduated from demo account.
Don’t trade in live account until you read a lot about trading psychology, emotions, money management and risk management. Then you can start with a cent account.
Very clear and you really raised some valid points. I’m a believer of demo trading, but I also know that staying on demo for a really long time could cost you some opportunities. 
