Common questions relating to demo trading

If I’m successful with demo trading, will it translate into successful live trading?

While demo trading provides valuable practice for live trading, there’s no guarantee of success in the live environment. The heightened emotional aspects of actual trading, along with real market conditions, can affect performance.

That said, a demo account can help you to put theory into practice and to experiment in a risk-free environment, which can, in turn, help to improve your trading performance.

What happens if I run out of funds in my demo account or want to add additional virtual funds?

Your demo account offers you the opportunity to experiment with new trading strategies, which may or may not pay off. If you’ve taken a risk and it’s resulted in losses, there’s no need to worry – not only are you not risking any real money, but you can top up your demo account at any point.

This is a useful feature even when you haven’t run out of funds. You might simply want to add more virtual funds if you’d like to trade with bigger lot sizes.

Will I see slippage in my demo account?

Slippage is the difference between the price at which you expect your order to be executed and the final price at which it’s actually executed. Slippage can be either positive (when you get a better price than you’d expected), or negative (when the price is less favourable than you thought it would be).

Slippage may happen when a price changes exactly as an order is executed, or in volatile conditions where the market is moving very quickly.

In a demo account, no real money is being spent, but the environment still mimics real-life trading, so you’ll get an opportunity to see the impact slippage has on your trades. You can also experiment with using guaranteed stops to minimise the impact of slippage.

I’m exploring trading options in my demo account, but some of the markets for stocks I want to trade are showing as closed. Why is this?

Certain markets, such as shares, don’t trade 24 hours a day. You can find specific dealing hours in the deal ticket ‘market info’ tab.

For example, if you’re trading US market options in UK time, the main session for shares will only open at 1.30pm (UK time).

Which is better – back testing or demo trading?

It depends on who you ask. They can both be valuable ways to test the performance of a trading system (the set of rules you might use to trigger buy and sell signals without any ambiguity or subjectivity).

Back testing is a method of analysing the potential performance of a trading strategy by applying it to sets of real-world, historical data. It’s based on the idea that strategies that have produced good results on past data might perform well in current and future market conditions. The thinking is that trying out trading plans on previous datasets that closely relate to current prices, regulations and market conditions can help you to test how well they perform before making a trade. Of course, there’s no guarantee that past results will be an indicator of future performance.

It's also important to remember that trades incur fees that might not be included in back tests. These need to be accounted for when performing back testing simulations, as they will affect your profit-loss (P/L) margins.

Demo account trading is a form of forward performance testing. While your back test might have shown you positive results, forward testing on a demo account can give you a more complete idea of how your system will fare moving forward and whether you need to make adjustments given the current market environment.

Trading advice suggests monitoring your emotions. Why is this important and does it work in demo trading?

It’s hard to overstate the importance of understanding your emotions when trading. The two main emotions that tend to influence trading decisions adversely are fear and greed.

Nobody wants to admit to feeling either of them, but most of us will experience these two emotions when trading. Fear might manifest as a reluctance to enter a trade or to close a winning trade prematurely. Greed often looks like adding more capital to winning trades or over-leveraging with the aim to profit from small moves in the market.

You might think that trading on a demo account isn’t subject to these emotions, but the truth is more complex. If you’ve ever found yourself staying up late trying to break through to the next level of a video game, pacing around your house to hit a daily step target, rushing to complete a language lesson so you don’t break your ‘streak’ on Duolingo, or posting your Wordle results on social media, you’ll know that humans can get strangely attached to numbers, wins and losses, even when they don’t have any real-world impact or consequence.

Traders who use demo accounts are often surprised that the feeling of losing a trade still stings when the money isn’t real, even if it’s less intense than with a live trade. And winning still feels good, even when there’s no real payout.

Although your emotions might be ‘muted’ with demo trading, they’re still in action. Paying careful attention to them and learning how to stick to your trading strategy despite them is good practice for live trading.

Read more about the psychology of trading here.

If you have specific questions about your own demo trading account, check whether your provider offers a community forum or knowledge base where you can ask for support or find other traders with similar questions.

You can also browse IG Academy for more tips and resources to help you sharpen your trading skills.