CFD trading is becoming popular with people interested in the financial markets but does not have the means or time to start their brokerage firm. CFDs are also very useful for traders who are still learning to trade with actual money. This article will show you why CFD demo accounts are important, what you can learn from them and how they can help your strategy become more profitable.
What are CFDs?
CFDs are financial instruments that allow you to speculate on the price of an asset without actually owning it. Depending on whether the market is going up or down, you can make or lose money. Making a profit is good, but making too much money could damage your trading account balance. It’s because CFDs are leveraged products.
Why use a demo account?
Trading without using a demo account can be compared to driving with your eyes closed. You know there’s traffic all around you, but if you’re new to this activity, then you may end up crashing into another car, falling off a cliff or getting lost on the road. The same goes for making trades without actually practising it. First, you want to make sure that you’re ready to face actual consequences. You can’t expect a broker to start allowing cash trades as soon as you sign up for an account. They would end up losing a lot of their clients. After all, trading with fake money is much more straightforward and less risky than doing it with real money.
Practice
By trading on a demo account, you can practice as many times as you need until your strategy is flawless and will result in a guaranteed profit every time. You’ll be able to make any trade without worrying about its consequences because if you lose everything at the end of the day, then it doesn’t matter since those were pretended funds anyway! On a demo account, your wins and losses are in cents instead of in dollars, an important detail you should remember when making a living from trading.
Brokers
Brokers offer the most popular and most accessible demo accounts. They usually have a practice platform to trade with virtual money without risking any actual cash. Since the software runs on your computer, there’s no waiting time or deposit required either! The only con is that they usually come with pretty limited options, including the lack of margin trades or tools like Fibonacci retracements. Luckily, if you decide to stop using the demo account provided by your broker, then it’s easy to find other platforms online which offer better features for free (or for an affordable fee). Saxo bank, XForex (the one I use), and Zulutrade are a few examples of platforms that offer a demo account for a small fee.
Virtual money
Once you get the hang of trading on a demo account, it’s time to switch from virtual money to cold, hard cash. You want to make sure that your skills are sharp enough before jumping in since it would be very disappointing if you lose money when using real funds. There is still some room for failure, though, since even the most profitable traders sometimes have one or two losing trades in their history. That being said, if your strategy is good, then you will become successful sooner or later!
Demo account con
The only con about trading on a demo account is that there is no way to withdraw any profits without closing the account and starting a new one. If you want to keep your earnings, it’s best to open up another brokerage account to deposit real money. Otherwise, if the broker asks for proof of funds when you try to withdraw your profits, you’ll have no choice but to cash out using an e-wallet or other payment method, including transaction fees.
Bottom line
There are numerous benefits associated with trading on a demo account. It would be best to take advantage of them to become more profitable over time. Visit this page for more info on demo accounts.
