What is a demo account and why use one?

Trading – by its nature – will always carry an element of risk. To help traders practise in a risk-free environment, many trading platforms offer a demo account. In this lesson, we’ll look at what a demo account is, the benefits of using one, the type of functionality to look for in one and how to open a demo account with us.

In the following lessons, we’ll explore what’s possible in a demo account, how to test new products and markets, and understand and use demo account data. Plus, we’ll share tips from our analysts to help you get the most out of your demo account.

What is a demo trading account?

A demo trading account is sometimes also called a practice trading account, trading simulator or paper trading account (paper trading is the term used to describe simulated securities trading, which is another way of saying pretend trading of tradeable assets, like shares or bonds).

In a nutshell, a demo trading account lets you simulate a real trading environment using fake funds instead of actual money. In other words, it’s a safe place for you to practise trading without putting any of your capital at risk. It enables you to get a feel for the ways that different products and financial markets work.

While there’s no risk when using a demo account, it’s important to understand that there’s also no monetary reward. You can’t earn returns from a demo account as it’s a simulated trade.

However, that doesn’t mean there isn’t a reward! Using a demo trading account can have several benefits, which we’ll outline below.

Why consider opening a demo trading account?

A demo trading account could be useful to you for many different reasons. For example:

• Testing the waters: you’re a beginner trader – and you’d like to make sure you understand how trading works properly before setting up a live account. You’re looking to learn the basics, understand market dynamics and get to grips with the trading platform without incurring any real-world losses
• Trying out new strategies: you consider yourself an intermediate trader. You have some trading experience, but you want to test out new strategies in real market conditions or try a different trading platform without risking your capital. You’re looking to explore and experiment, and build your trading confidence
• Expanding into new markets: you’re an intermediate or advanced trader and want to expand into new markets. Perhaps you started with foreign exchange trading and you’re looking to explore indices, shares, futures or commodities. Every market is subject to different influences and will enable different kinds of market orders. Some markets might also feature varying margin requirements. Learning how these different markets operate may be easier in a demo trading environment
• Improving your weaknesses: you’re an intermediate or experienced trader, but you find that you tend to win in the same places and lose in the same places. If there’s a market where your trades consistently perform well, you might decide to focus on that market in your live account, and to use the demo trading account to work on markets where your trades consistently underperform

A demo trading account may benefit you wherever you are in your trading journey, whether you’re looking to put theory into practice, to improve your performance or to experiment in a risk-free environment.

What other differences and similarities are there between demo and live accounts?

While the biggest contrast between a demo and a live account is that you’re trading with virtual money, there are a few other differences to be aware of, too.

For example, trades made through the demo account won’t be subject to margin call. You’ll also not be charged for chart packages on a demo account. And any updates made to the live trading platform might take a little while to reflect in the demo environment.

There are some similarities between the two as well. In both demo and live accounts, trades may be rejected if you have insufficient funds to open them. Trades will also not be closed if you don’t have enough funds to cover margin and running losses. This happens with a live account, too, but you’ll face margin calls there.

Functionality to look for in a demo trading account

When considering opening a demo trading account, the first step is to know which markets you want to explore. For example, are you looking to trade forex, shares, commodities, bonds or options? Do you want to be able to trade in multiple markets from one account?

If you’d like to create trading experiences across multiple markets you’ll want to look for a demo account that gives you access to the different asset classes that interest you.

Because traders will generally use a trading simulator to better understand real world markets, it makes sense to look for a demo trading account that closely resembles a live account environment. This ensures your simulated learning experience will translate well into live conditions and equip you to make real-world trading decisions.

Also look for demo environments that enable you to set alerts on markets you want to keep an eye on, so you can react instantly to any price movements.

Like many other brokers, we offer a demo environment where you can hone your trading skills.

How to open a demo trading account

Opening a demo account with us is simple. All you need to do is:

1. Open your internet browser
2. Navigate to the demo account page
3. Fill in and submit the contact form

Once you’ve completed these steps, you have immediate access to your new demo account, where you can develop your trading skills on thousands of markets, practise trading with £10,000 in virtual funds, get educational content on IG Academy and test strategies on the go with our free mobile apps.

If you’re interested in using more advanced software, you can also get a MetaTrader 4 demo account with us. This enables you to build your understanding of the MT4 online trading platform in a risk-free environment.