Stock trading can be a lucrative profession when done diligently. Sadly, most people who open trading accounts to become traders in the market fail to understand the risk involved with stock trading. They focus on the lucrative aspects and completely forget about the risk aspect, and they end up losing money. However, if you have done your homework and understand the risks involved with stock trading, then you start to have second thoughts regarding whether or not you should be trading stocks. In that case, you can make use of a demo trading account. So, "What is a demo trading account?"
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What is a Demo Trading Account?
Demo trading, in a way, is like the modern day equivalent of paper trading. In the case of demo trading, you are using software to record your potential trades and strategies, instead of paper chits. That software is your demo trading account. This account may look similar to a regular trading account, but the trades you place using the demo account bear no real-world consequences.
Some stockbrokers and trading websites offer demo trading services, so that potential traders or investors can get an idea of stock trading without having to bear any risk. It does that by allowing potential investors and traders to trade artificial stocks using virtual money. You can use a demo trading account to trade in different asset classes like stocks, derivatives, and commodities. Along with different asset classes, you can also access different trading tools using your demo account.
How Does a Trading Demo Account Work?
If the stockbroker with whom you open an actual trading account provides demo trading facilities, you may get a free demo trading account in most cases. However, if you open a demo trading account with a trading website that does not possess a stockbroking license, you may have to pay a separate subscription fee or a one-time fee to use the account. However, at no point in time will you be asked to deposit real money into your demo trading account. The point of a demo trading account is to let you practice trading without deploying real capital.
Your demo trading account will contain virtual, artificial money that you can use to practice different trading strategies. So, if your broker offers demo trading services, consider opting for them or utilizing them. Some brokers provide an option to seamlessly toggle between your real and demo accounts. The demo account creates a simulation of the real market. So, in your demo trading account, you trade the same securities that are traded in the real market. Likewise, the price of those securities on your demo trading platform will reflect the price of the real world securities.
For example, if Company A’s stock falls by 3% in a particular trade, the same stock in your demo account should also fall by 3% along with the stock in the real market. Although the price of the security in your demo account may reflect the real world, note that the securities you see on your demo trading platform are not real.
Why Should You Use a Demo Trading Account ?
You can implement plenty of flexible trading styles to make money in the stock market. For example, you could day trade, swing trade, or consider investing for the long-term. Furthermore, there are various approaches to executing those trading styles. For example, if you wish to become an intraday trader, you could carry out range trading, breakout trading, scalping, etc. Likewise, if you wish to become a long-term investor, you can follow a value investing approach, a techno-funda approach, a momentum investing approach, etc. At the same time, there is no rule that says you have to stick to one particular style or strategy. Instead, you could trade using different styles and combine the different trading strategies.
That said, you can find out which trading styles and strategies suit you the best by experimenting. However, experimenting in the real market can end up being costly, as we do possess infinite money for trial and error. Even if you do research well and do all your homework, there is no certainty of making profits. The fear of incurring losses naturally demotivates traders from experimenting with trading styles and techniques. Here is where a demo trading account can be of great use. So, now let us look at the benefits of a demo trading platform.
Benefits of a Demo Trading Account
A demo account allows beginners to learn share market trading without putting real money on the line.
The realistic simulation gives traders a feel for a real market environment.
It allows traders to try out different trading strategies in different market conditions.
The realistic conditions also help traders identify psychological barriers that may hinder their success in the real market.
Can Seasoned Investors Use a Demo Trading Account?
No rule states that you must be a beginner to use the demo trading services. As a seasoned investor, you can use a demo account to test traders and strategies in unfavorable market conditions. You could also use demo trading to try out additional trades after you are done trading in the real market for the day.
So, using demo trading facilities, you can explore what it is to trade in the stock market without making a dent in your wallet. It lets you acquaint yourself with trading tools and realize your strengths and weaknesses as a stock market trader. It does not matter whether you are a beginner or veteran, you can use a demo account to practice trading in the stock market. Start trading with share india's trading platform