The three biggest benefits of demo accounts:
- Avoiding unnecessary risks:As with anything, the possibility of reward means the existence of the possibility of loss, and in no place is this truer than in the financial spread betting markets. One of the reasons that spread betting is so risky is due to the use of leverage (which magnifies profits and losses). This means that you may end up in a situation where you lose more than your initial investment. The best way to avoid such occurrences is to practice using a demo account and to get a feel for how leverage and margin requirements work.
- Gaining knowledge for free:Demo accounts give you an initial wallet of virtual money which is yours to invest as you please. This provides a secure environment where you can trade most major asset classes using live prices. This allows you to get a feel for financial market trading conditions and test out strategies in a riskless environment. There is generally no limitation on the number of times a spread betting demo account can be reset, so this allows you to test any number of strategies before settling on your chosen trading style.
- Reducing anxiety levels:One problem that many new traders experience is a level of anxiousness, where they might want to get into real time trading (and start earning gains) before they are fully researched and prepared. This is often a fatal flaw and is one that novices should avoid. Patience when spread betting is of paramount importance. Trying, testing and understanding spread betting markets before becoming financially invested will allow you to trade with more confidence when you do commence. It should be remembered that there is no difference between a demo account and a live account, except that there is no risk of financial loss with a demo account. So once you are comfortable with your performance in your demo account, you should be able to transfer seamlessly to your live account.
Having discussed the advantages of demo accounts, I am now going to examine the demo accounts currently offered by Capital Spreads, Inter Trader and Spread Co. Three negatives/three things to watch out for with demo accounts:
- It is not real money
- People tend to concentrate less and
- They take bigger risks than would normally take
Advice: Treat this money as if it was your own.