Why Is Trading On a Demo So Important
Trading on a demo is vital for success in the binary options market. Today most of the binary options brokers offer a free demo account to get you on-board but you’ll often find that your demo account is limited to $1000 or 14 days or that you need to open a live account simultaneously.
The traders should therefore appreciate and utilise a free demo account when they get the chance. There used to be a time when there was not a single broker that provided demo accounts. As competition grew, a few brokers started to provide them but with certain conditions attached. Only a handful of proprietary binary options brokers provide their traders with unlimited demo accounts with no commitments to fund and trade.
Perhaps one of the reasons why we do not have so many binary options free and unlimited demo accounts is because traders do not understand why they are necessary. There are several reasons why trading on a demo account is vital for success in binary options. Some of these reasons are:
- Getting a feel for the platform
- Perfecting trading strategies
- Understanding the structure and function of the market
- Optimizing your trading tools
Let us take each of them one after the other.
Getting a feel for the platform
We all must have heard the saying ‘practice makes perfect’. The more you engage in an activity, the better you will be at it. Establishments do not subject their staff or personnel to the real thing immediately, but rather subject them to simulations, drills and various forms of practice runs before they are introduced into the real stuff. That is why aircraft pilots have simulators to train them, military personnel are subjected to drills and people who legally own firearms or who by the nature of their jobs have to use them, go to shooting ranges to practice how to handle firearms and fire accurately with them.
It is the same with binary options trading. A demo account is the practice shooting range. This is where the trader will practice a number of things in order to gain mastery of the trading platform and a feel for the market. Testing and practice work best in an environment where there is no emotional and financial pressure, and the best place to do this is on a demo account. There are those who believe that practice should be done in a low-capital live account, but it is best to start with a demo account and then proceed to a live account with very small money in it to further the practice sessions in a live environment.
Perfecting your trading strategies
The demo account is also where strategies are perfected, especially when those strategies are novel. Strategies built to work as automated programs must be thoroughly tested with a demo account. Any bugs or malfunctions in such strategies can be detected, taken care of, further tested and then deployed in a live situation. The strategies being used now for binary options are getting more complex by the day, and this has served to increase the importance of binary options demo accounts.
Understanding the structure and function of the market
The structure and function of the binary options market is a key component of success in this market. Binary options have unique features which must be understood. One of these features is that all trades expire. So how does a trader make trade calls that must be found to be accurate when the time allocated to the trade expires? How are orders placed? How is risk spread or allocated to each trade? How are different assets traded on the platforms? These questions form the crux of the structure and function of the market, which can be better understood with a demo account.
The demo account will help the trader understand what assets are available for trading at certain times. Payouts tend to dwindle if trades are placed closer to the set expiry times. How can this be proven, or can we say, how can this be tested? It is only by actually setting such trades close to expiry times on a demo account to actually see if this is the case or not. How do functions like the Double Up, Rollover or Early Closure functions work? The trader can learn this by setting the trades on a demo account and then using these functions. This way, you can actually get to know what the true situation is and have the knowledge for yourself, as opposed to taking what is written somewhere on the internet as fact even when it may not be accurate.
Optimizing your trading tools
The binary options market has evolved heavily from the early days and it is fairly common practice now to use tools such as indicators and automated trading bots as part of the trading arsenal. Traders can actually optimize these tools on a demo account. The demo account can therefore serve as the place where trade tools are optimized and perfected for use. For instance, the auto pivot point calculator has been around for several years and several versions are available. But some programmers have used demo accounts to tweak the indicator and add several elements to it. Now you have versions that are optimized for weekly periods, as well as, versions that are tied to Fibonacci numbers. These kinds of tweaks and optimizations are usually done on demo accounts and this is why they are so important.
Now that you know what demo accounts can do for you in binary options, demand from your broker to provide one for you with user friendly conditions. If you are given a time-limited version, please use this time period well and test out all the platform’s features and tools.
To find out which brokers offer a free demo account please refer to our Binary Brokers Comparison chart.Published in Education