Try Before You Buy: Why Budding Financial Traders Should Practice with Demo Accounts. Image: Supplied
Australians love to trade and invest. That’s not a throwaway comment. Studies conducted over the last few years have determined that Australia has the largest FX/CFD trading market per capita in the world. There are many reasons for this, some cultural, others economic, and others logistical. As to the latter point, for instance, it’s worth pointing out that Australia has some of the best regulations for trading online, which act to both protect traders and investors while also creating amenable conditions to trade in a free market.
One of the big drivers of the boom in Australian online trading is the growth of the retail market. Broadly speaking, a retail trader is anyone who trades and invests without being a professional. In the past, this used to be what the Americans would call “a mom-and-pop investor”. However, given the wealth of trading platforms, tools, tech, and wider access to markets today, it’s taken on a new form. Retail investors are likely to be young, tech-savvy, and keen to build wealth in a new era of economics.
It is undeniable that there are alluring aspects of becoming a trader and investor, regardless if it is a hobby or something that you wish to build up over time. You no longer need to have formal training, and, as mentioned, the modern architecture of finance means you have just as much access to the markets as the typical wealth manager. Today’s mantra is largely, “Why pay the middleman?”.
Whether you’re an Aussie abroad in the UK or interested in trading back at home, the most sagacious advice you will receive on becoming a retail trader is to open a demo trading account first. Choose a reputable Australian online trading broker that offers demo accounts, then set it up to start your trading journey without risking your capital. There are a number of reasons for this, some of which you may feel are predictable. But the most prevalent reason is not about learning how to trade charts, understand Bollinger bands, or execute a killer short trade. It’s about psychology.
Talk to any experienced trader, and they will always tell you that they made mistakes early in their career. Often, that revolves around not being equipped to deal with successes and losses. They will tell you that they held on to assets too long or sold in a panic. They will tell you that they overtraded a market, or that they got greedy, or not greedy enough. The point, as such, is that discipline can only be learned through experience in trading.
This is where a demo account can be incredibly useful. The best demo accounts will offer basically everything that comes with a real account without needing to risk any capital. The idea, of course, is that you start trading as if the account were real, using your demo funds to build your strategy. Because you’ll be trading real markets, you will get to experience how market conditions impact your portfolio. You’ll win and lose trades and be all the better for it.
Now, there is an argument that trading and investing with demo funds will not replicate the real thing. You are, perhaps, far more likely to be frivolous with your trades. Without sounding obvious, the key is not to get into that mindset. Treat the demo account as the real thing and try to imagine how it would feel should you make – or lose – real money in the trading scenario. You should also try to do other things successful traders do, such as keeping a journal.
An underrated factor about using a demo account is that it also allows you to get used to the broker. Not all trading platforms are created equal, so a demo account allows you to “try before you buy”. If you don’t feel comfortable, you can always try another. There is no obligation to follow through with that specific broker.
Finally, we should add that you should use your demo account for as long as possible. Moreover, there is nothing to say that you shouldn’t continue demo trading as you begin trading and investing for real. Learn without risk to your money and start building the psychology of a trader. The demo account is a gift to anyone who wants to start their investment journey.
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