What is a demo account and why use one?

Trading -- by its nature -- will always carry an element of risk. To help investors to practise trading in a virtual environment, many trading platforms offer a demo trading account. In this lesson, we’ll look at what a demo account is, the benefits of using one, the type of functionality to look for in a demo account, and how to open an IG demo account.

In the following lessons, we’ll explore:

• What’s possible in a demo account
• How to test new products and markets
• Understanding and using demo account data
• Tips from our analysts to help you get the most out of your demo account

What is a demo trading account?

A demo trading account is sometimes also called a practice trading account or paper trading account (paper trading is the term used to describe simulated securities trading, which is a fancy way of saying pretend trading of tradeable assets, like shares or bonds).

In a nutshell, a demo trading account lets you simulate a trading environment using virtual funds instead of real money. It’s a safe place for you to practise trading without putting any of your real capital at risk. It allows you to get a feel for the ways that different products and financial markets work.

While there’s no risk when using a demo account, it’s important to understand that there’s also no real monetary reward. You can’t earn real returns from a trading demo account as it is a simulated trade.

However, that doesn’t mean there’s no reward! Using a demo trading account can have several benefits, which we’ll outline below.

Why consider opening a demo trading account?

A demo trading account could be useful to you for many different reasons. For example:

Testing the waters

You are a beginner trader and you would like to make sure you understand how trading works properly before setting up a live account with real money. You are looking to learn the basics, to understand the market dynamics and get to grips with the trading platform without incurring any real-world losses.

Trying out new strategies

You consider yourself an intermediate trader. You have some trading experience, but you want to test out new strategies in real market conditions or try a different trading platform without risking your capital. You’re looking to explore and experiment and to build your trading confidence. Do consider that this is not a live account and be mindful of the differences of a live account and a demo account, and how it will affect your trading strategy.

Expanding into new markets

You are an intermediate or advanced trader and want to expand into new markets. Perhaps you started with foreign exchange trading and you’re looking to explore indices, shares, futures, or commodities. Every market is subject to different influences and will allow different kinds of market orders. Some markets may also feature varying margin requirements. Learning how these different markets operate may be easier in a demo trading environment.

Improving your weaknesses

You’re an intermediate or experienced trader, but you find that you tend to win in the same places and lose in the same places. If there’s a market where your trades consistently perform well, you might decide to focus on that market in your live account, and to use the demo trading account environment to work on markets where your trades tend to consistently underperform.

A demo trading account may benefit you wherever you are in your trading journey, whether you’re looking to put theory into practice, to improve your performance or to experiment in a risk-free environment.

Aside from risk, are there any differences between live and demo trading accounts?

While the biggest difference between a demo trading account and a live account is that you’re trading with virtual money, not real money, there are a few other differences to be aware of too.

For example, you’ll find much of the functionality very similar to using a live account, but there are key differences. Trades made through the demo account will not be subject to margin call. You will also not be charged for chart packages on a demo account. Any updates made to the live trading platform might also take a little while to reflect in the demo environment.

In a demo account, trades will not be closed if you have insufficient funds to cover margin and running losses, which can happen in a live account. Trades made through the demo account will not be subject to slippage, interest and dividend adjustments, or out-of-hours price movements. Trades may be rejected if you have insufficient funds to open them, but, unlike on a live account, will never be rejected on the grounds of size or price.

Functionality to look for in a demo trading account

When considering opening a demo trading account, the first step is to know which market or markets you want to explore. For example, are you looking to trade forex, shares, commodities, bonds or options? Do you want to be able to trade in multiple markets from one account?

If you’re looking to develop trading experience across multiple markets you might want to look for a demo trading account that gives you access to the different asset classes that interest you, whether that’s indices, forex, shares, commodities, bonds, rates or options. Because investors will generally use a trading simulator to better understand real world markets, it makes sense to look for a demo trading account that closely resembles a live account environment. This ensures your simulated learning experience will translate well into the live trading environment and equip you to make real-world trading decisions.

Also look for demo environments that allow you to set alerts on markets you want to keep an eye on, so you can react instantly to any price volatility.

Like many other trading providers, IG offers a demo environment where you can hone your trading skill.

How to open an IG demo trading account

Opening an IG demo trading account is simple. All you need to do is:

1. Open your internet browser
2. Navigate to the IG demo account landing page
3. Fill in and submit the contact form

Once you’ve completed these steps, you have immediate access to your new IG demo trading account, where you can develop your trading skills on thousands of markets, practise trading with A$20,000 in virtual funds, get exclusive educational content on IG Academy, and test strategies on the go with our free mobile app.

If you’re interested in using more advanced software, you can also get an MT4 demo account with us. This enables you to build your understanding of the MetaTrader4 online trading platform in a risk-free environment.