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Demo vs live account: how to start binary trading

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Lesson 6

So, you are interested trading binary options but don't know where to begin. A demo account might be a good place to start, with many brokers offering free demo trading with no strings attached.

You can easily start a binary demo account with $10,000 in virtual money. Find your best trading strategy and practice until your reach over 80% win ratio on a monthly basis, this way you build self-confidence.

A demo account might be a good start, but you should be aware of some psychological differences that comes with trading on a practice trading account. Just like babies learn to crawl before they can walk, and learn to walk before they can run, trading binary options successfully requires you to start with a risk-free demo trading account.

You need to be able to understand the markets you are trading in, become familiar with the binary options trading platform, and know how to hone your emotions before you can even start thinking about success.

Most binary options brokers will simply entice you by explaining how easy it is to make money with binary options trading. However, the truth is far from it. If you want consistent results, eventually looking at binary trading as a way to build an additional income stream, you need to take the bull by its horns.

In this lesson, you will learn the basics of how to start trading binary options on a demo account and some key points to remember about the differences arising from trading on a demo and a live trading account.

Trading binary options on a demo or a live account?

When learning to trade binary options, the first question that comes to mind is whether to use a demo trading account or to risk some money and practice with real conditions. Given that most binary brokers allow you trade for as little as $1 per contract, this can be an alternative worth considering. However, not many of us can afford to practice with real money, and a demo account makes sense for a number of reasons.

A demo trading account allows you to trade in a simulated environment with virtual money. This means that you can afford to make silly mistakes as part of your learning curve and yet not have a dent in your wallet.

A practice trading account not only helps you to learn how to trade, it also helps you to become familiar with the broker’s trading platform. After a short time using the free trading account, you can quickly learn about the navigation, any additional features that the platform has to offer and so on. All of this combined will eventually help you trade better once you start trading binary options with real money.

Benefits of trading with a demo account

If you are just getting started with binary options trading, then it is highly recommended that you open a free account first. Sometimes, it is very easy to be blinded by the amount of money one can make trading binary options, and many beginners start to trade with real money without any practice. Doing so will not get you far as you will end up losing money within a short period of time.

A demo trading account will help you in many ways, some of which are outlined below:

  • Find a winning trading strategy
  • Understand how the markets behave
  • Risk free trading means that you can make mistakes at no cost
  • Find your winning markets or instruments to trade
  • Increasing the reliability of your trading strategy
  • Understand when to trade and when not to
  • Know what contract types you should trade and what contract types you should avoid at all costs

Psychological differences between a demo and a real account

This is human nature after all. Imagine you were asked to climb a tall ladder with a strong safety net built below you. Now, what if you were asked to climb the same ladder without a safety net? What would your response be?

This is the same with binary trading as well. A free trading account is your safety net since there are no funds risked. A live account is trading without a safety net, and if you make a mistake, the market will take your money.

Some might also argue that the data feed shown by the binary broker is also fake, and therefore, you might see more winning trades with the practice account. There is no data to back up such claims, and as far as possible, you can always compare the demo prices to that of the real market prices if you are unsure.

It is easy to fall into a sense of safety when trading with a free account. However, maintaining some rules, such as your trading strategy, applying money management principles and so on can help you keep an objective view and thus keep you from falling into the psychological trap of trading with a free binary options account.

How to make sure you really learn binary options trading with a demo account

When practicing on a demo account, traders should be aware of psychological traps, such as complacency. You can become lazy and start making mistakes, so make sure that this doesn’t happen. A good trader often takes notes on his/her trading, and this is a good practice to remove any emotions from your trading. You can also refer to your trading notes to realize why a trade was won or lost and whether there were any emotional decisions made.

Once you are comfortable with your trading performance over a period of a month or more, you can then start to replicate your strategy on a real account. Just make sure that the first couple of trades are made on the minimum investment amount allowed by your broker. This way any mistakes that could result in losing trades will result in minimal losses only.

Remember, trading is all about learning, and trading with a real account doesn’t mean that your learning has ended. As a result, binary traders need to be disciplined at all times and always look forward to learning something new from the markets.

The bottom line is that a binary options demo is no doubt the first place to start. By maintaining a professional outlook, traders can avoid being complacent and can start treating their demo account as if it were real. When the same discipline and rules are applied to a live account, you can start to see the profits pour in.