Psychological difference between demo and real
Young traders have always been advised to start with a demo account before opening real money account. Through demo trading you can acquire the basic skills and test the trading platform but can you train your emotions for real?
Why demo account is recommended for beginners?
Binary options platforms are offering many different types of trading with some of them more advanced than others. To try all types of options I would definitely recommend you not risking real funds as in the end most of the traders use call/put options and 60 seconds. It doesn’t make sense to invest real money in more exotic options such as Binary 0-100 or Ladder before you get experienced enough.
When you set up your trading strategy based on fundamental and technical factors, go to your demo account and follow your trades closely. It is even better if you keep track of your actions – later you can try replicating them in real trading. Having a successful strategy in demo mode doesn’t necessarily mean that you will profit in real trading with the same strategy.
Market conditions are constantly changing and that is why you can’t always follow the same strategy. Successful trades are based on right decisions at the right time and this is difficult to practice in demo mode because you don’t really care for the fake cash. Once real cash is involved, your emotions would affect your decisions. This is called psychological difference between demo and real.
What will change when I switch to real account?
If you had just splashed $100.000 in fake money for two days, then a lot would change for you as your first deposit in real money would most probably be of around $1.000. When real money is at risk, emotional vulnerability increases and makes traders take wrong decisions. You need to keep your emotions down and to focus on the market news and charts.
In fact binary options are a very simple way of trading based on short term predictions. The problem is that payouts are usually of around 80%, which means you need more than 50% of successful trades to keep your balance positive. Of course there are types of options with much higher payouts (up to 1.000%) but I would not recommend starting with them.
With your money at risk the temptation to commit some of the trading sins will increase. Most traders start investing bigger amounts after a good session of trades which might lead to heavy losses in the end. On the other hand, some consecutive unsuccessful trades could make you change your initial strategy, which in most of the cases would result in more losses.
I would recommend you to deposit an amount of money you can afford to lose – this will help you reduce psychological burden and will cut off the pressure. It is important to focus on the markets, the upcoming news and your actions on the platform, not so much on the profits. When you are confident enough in what you are doing, the profits will follow.
How to treat a demo account as real one?
I should say from my experience this is not really easy to manage as it requires mind games and practice. The trick is to trick your mind that this money was actually real and you had been working hard to earn them. Imagine that this money was your salary and you could not afford to just squander it in the next 15 min expiry.
For example if your monthly salary was $3.000, tell your account manager to fund your demo with exactly $3.000. Start your trades with small amounts such as the minimum which is around $20-$25. If you are profitable increase the amount to $100 per trade and continue trading – at the end of the month your balance shows: $6.000 then maybe, just maybe, you are ready to switch to real account.
To fully deceive your brain you might react happy on your winnings but don’t go too far as you have just won the national lottery. The best is to stay calm and to keep your emotions low – this way you are more likely to make the right decisions. Too much fireworks or hitting your PC will not work in your favor – you have to be emotionless as much as possible.