InfoWhy Live and Demo Forex Trading Show Differences

In practice - often because of the lack of a real money commitment - results achieved from trading in a demo account can differ considerably from actual live trading results. Even if a person performs extremely well trading a demo account, their results in a live account often differ considerably. In general, this phenomenon tends to arise because when your own funds are at risk, a different trading mindset often ensues than when trading with virtual money.

This potentially significant difference factor needs to be taken into account by a trader when assessing the value of a particular trading strategy or the services of a forex broker they are testing.

The primary reasons that such differences can be observed between live and demo account trading tend to fall into two main categories: execution related and trader related. Each of these categories will be discussed in greater detail in the sections below.

Execution Related Differences Between Live and Demo Accounts

The following potential causes for performance differences observed between live and demo account trading can be attributed to execution issues:

A forex broker may never requote a price to a demo account trader, but they might often requote live prices in actual practice.

The broker's price feed and dealing spreads for demo trading may well differ from the pricing that is provided for live trading accounts.

The broker may execute demo stop loss orders accurately, but considerable slippage may occur in a live trading environment.

Broker errors that sometimes arise when trading can cost a trader considerable time, effort and even money when attempting to resolve them via the broker's customer service department. Most traders would not observe or would ignore this phenomenon when demo trading.

Sometimes a broker will not offer their real trading platform for demonstration purposes. This can mean that the trader needs to learn and acclimate to a new platform when switching to live trading

Trader Related Differences Between Live and Demo Accounts

The following potential causes for performance differences observed between live and demo account trading can be attributed to trader issues:

A possible lack of emotional commitment when no real money is at stake may create an unrealistically positive trading environment in demo trading that is not found in live trading when the trader's account funds are actually on the line.

A trader's failure to following their trading plan has no real consequences. As a result, a trader may develop bad discipline-related habits that can cost them money when trading live.

Traders might be tempted to overtrade or insufficiently evaluate risk when trading in a demo account. This behavior can then have serious negative consequences when they switch to engaging in live trading.

Demo Trading Benefits

Trading virtual money removes the psychological element from trading, so for this reason, it cannot accurately assess a person's trading abilities. Nevertheless, virtual trading can have great benefits when testing the performance of a trade plan and also for trader education purposes.

When used as an educational tool, a forex demo account gives novices a risk-free start to trading in the forex market. In addition, strategies can be put to the test without assuming any risk, all in real time trading situations.

Overall, trading in a demo account offers a great service to novices that would otherwise have to learn using, and probably losing, real money. While the emotional rush of risking real money while trading may be lacking in demo trading, trading a demo account allows you to learn to watch the market closely and can help you get a better feel for how the forex market operates without putting any real cash on the line.

Consider Using a Micro Account Instead of Demo Account

To get around some of the aforementioned causes of performance differences between live and demo account, some traders have chosen to open micro or mini accounts with a forex broker, using a small amount of funds rather than funding their entire trading account right away.

This strategy allows them to test out the forex broker or trading strategies in a live trading environment, while not putting their primary account funds at risk of loss.
what we want: 1+1+1+1+1+1+1+1+1=9 <3
what market delivers: 1+2+8+7-4+0-5+8-4-5+1=9 :problem:

Failure is success in progress

Dr. Alexander Elder : successful trading should be a little bit boring.

Re: Why Live and Demo Forex Trading Show Differences

3 Psychological Differences between Demo and Live Trading

As a newbie trader, you have constantly been encouraged to practice demo trading first before going live. Through demo trading, you were able to hone the basic trading skills, develop a trade plan, conduct proper risk management, and understand trading psychology (at least we hope so!) without putting your hard-earned cash on the line.

Once you were able to demonstrate consistent profitability and build up your confidence in taking trades, you decided that it was time for you to get your feet wet and open a live trading account. Since you were already hitting consecutive wins on demo, making huge profits with real money at risk shouldn’t be that difficult, right?


When most newbies cross over from demo to live, they usually believe that their demo trading results can be easily replicated on a real account. Because of that, some are left very frustrated when they realize that this isn’t always the case. Here are a few reasons why:

1. Real money means real emotions.

As traders, we try to be as emotionless as Kristen Stewart while making trading decisions. However, eliminating one’s emotions completely isn’t humanly possible and it can’t be helped that vulnerability to emotions increases when real money is at risk.

To illustrate, compare what you were feeling when you first traded on a demo account versus how you felt when you placed your very first live trade. Was your heart beating faster? Did you feel butterflies in your tummy? Were your hands a bit shaky? If so, then you were either madly in love or feeling an extra kick of nervousness when you started trading live!

2. There is no real monetary risk on demo.

Even if you tried to treat your demo account as a real one, the truth is that there is no real monetary risk on demo. You can suffer a few losses here and there but, at the back of your mind, you know that you can have your demo account refilled with fake cash any time.

If you make a ton of mistakes on demo, you can be comforted by the fact that you can start over easily and this takes a lot of pressure off your shoulders. In contrast, finding yourself in a slump while trading real money can hurt your trading confidence and can cloud your trading decisions later on.

3. The temptation to commit trading sins is stronger in live trading.

Because you’re dealing with real monetary risk, you’ll be more emotionally invested in the outcome of your trades. As a result, the temptation to go back to your bad trading habits will be a lot stronger.

Just when you thought that you’ve finally overcome those habits, you might find yourself committing common trading sins like moving your stop losses, cutting off your winning trades early, and revenge trading.

For some traders, their desire to prove that their live accounts can be as profitable as their demo accounts even lead to new problems like overtrading and ignoring their trading plans altogether.
what we want: 1+1+1+1+1+1+1+1+1=9 <3
what market delivers: 1+2+8+7-4+0-5+8-4-5+1=9 :problem:

Failure is success in progress

Dr. Alexander Elder : successful trading should be a little bit boring.

Re: Why Live and Demo Forex Trading Show Differences


At the execution level, you might think that you shouldn’t see any differences between a real account and a demo account. Yet, you can often observe differences in terms of liquidity, slippage or latency depending on the broker you’re using, because a demo account cannot completely simulate the supply/demand aspect.


Market Liquidity is the term for buying or selling an asset without triggering major changes in the asset’s price.
Slippage is the difference between the required price and the price at which the trade is actually triggered (entry price or exit price with any kind of order: limit orders, market orders, stop-loss or take-profit orders…).
The Spread is your broker’s fee. It’s the difference between the buying price and the selling price, the ask and the bid price, hence the name of bid-ask spread.

The available market liquidity can differ depending on the market you are investing in, and the current market conditions that can increase volatility: is there a market-moving statistic/event? Is a central bank going to talk about its rate decision? Is a war being declared? Is there a natural disaster happening?

This liquidity’s depth cannot totally be simulated in a demo account if a lot of traders suddenly want to buy USD and sell EUR for example. These market condition changes also affect the latency time, slippage and the spread.

A broker may execute stop-loss orders more accurately with a demo account, whereas you will deal with considerable slippage with a real account, because of liquidity and markets conditions. The same goes for the spread, which might widen in periods of limited liquidity or during very volatile events (such as Brexit), whereas you often have static spreads with demo accounts.

he biggest difference lies in the psychological aspect.

With a real account, you will not have the same decision process, the same capital or the same reactions to profits (or losses) as with a demo account. Your money management will also be affected by your mental state and whether or not you respect your trading plan.

Your emotions will make all the difference between the performance of a demo account – because it’s not your money – and the performance of a real account. This time you have decided to move to a real money account!

Some tips to achieve the same performance on a real account

You must try to minimize harmful emotions to avoid polluting your trading.

You must try wherever possible to trade step by step using the resources of your broker, such as using different lot sizes: first micro-lots, and then mini lots, then 1 complete lot…

This is better to avoid trading products that you don’t really know because the volatility, the spreads, the margins etc. might be different than what you are use to. Once again, you should use the information available from your broker on margins, spreads and commissions.

Try to avoid trading in market conditions you don’t know, such as trading news, which causes high volatility and lower liquidity. It is also better not to trade on Friday or on Sunday night.

It is necessary to have a solid trading plan you have back-tested and most importantly that you will follow. It has to be implemented with good money management:

know how to estimate the expected profit (place a limit order at least 2 times higher than the stop-loss),
define the associated risk (stop-loss should not exceed more than 3% of your total capital)
assess the level of investment required to take a position, taking into account the leverage effect. You should always have a risk/reward ratio before entering the position, typically 2x or higher.
You can improve your chances of success in trading by being more patient
what we want: 1+1+1+1+1+1+1+1+1=9 <3
what market delivers: 1+2+8+7-4+0-5+8-4-5+1=9 :problem:

Failure is success in progress

Dr. Alexander Elder : successful trading should be a little bit boring.

Re: Why Live and Demo Forex Trading Show Differences

"Don't use a Demo, use a Micro Account"......I second that! I have always used a Micro account. The advantage is that you trade with your own money, the risk is really very little and thus you can experiment and trade without fear and you learn your broker's habits at the same time.

Re: Why Live and Demo Forex Trading Show Differences

bilbao wrote:
Mon May 08, 2017 5:49 am
The Spread is your broker’s fee.
Actually, this isn't true. The spread is the fee you have to pay to participate on the market. You pay it to the bank network/stock exchange. The commission is the fee for your broker. When you have a Market Maker Broker you have only "spread" because there is no real market and the market fee goes to your broker (and your margin). Mostly this fake market spread is more than spread + commission of NDD brokers (ECN/STP). Normally, you remargin your MM account 2-3 times and then you leave either this broker or the world of forex frustrated. The ECN/STP account commission can be small since you move big amounts of money (or hopefully you will one day ;) so it leads to a win-win for your broker AND you. But be aware that without or bad skills you also loose your money with an ECN/STP account.

Re: Why Live and Demo Forex Trading Show Differences

Additional reason is unreal trading conditions: For example trading demo with 100K and regular trading volume of 100K does not seems in line with Live 5K account and the same position trading size of 100K.
Demo account in many conditions seems more sustainable :)

Re: Why Live and Demo Forex Trading Show Differences

There is a significant difference we feel when we trade in a real account. However, the Demo and the Live account could complement each other ,as the demo is suitable for practicing your trading skills and developing and testing a trading strategy which could be implemented in live environment later.

Re: Why Live and Demo Forex Trading Show Differences

article by: Rolf

One of the most commonly asked questions new traders have is how long they should stay on demo trading and what to do when they demo trade. My view on demo trading stands in contrast to what you usually read about demo trading on most other websites, but I am a strong believer that if you want to make it in this business, you can’t listen to the common advice. 99% of all traders read the same stuff, get the same advice and follow the same path – and they all end up losing money. It’s time to think differently and approach trading from a different perspective, at least that’s how I did it and it has worked for me.

No question, demo first!
No doubt, every trader should start on demo first and he should stay on demo trading for at least the first 2-3 months. The biggest mistake I see people make is that they can’t make the transition from demo to live trading and they are stuck with their demo trading WAY too long. Staying on demo too long will ruin your way of trading as we will see later.

Purpose of demo trading
When it comes to demo trading, you have to ask yourself what your goals are with demo trading and what you want to achieve so that you can objectively judge when you reached those goals and can move on to live trading. There are 3 main things that demo trading is for:

1) Understand the platform

Especially for new traders, it is important that you get to know your trading platform very intimately. You should try every button and test every feature of your platform. Thinking about how to use your platform while you are making live trades is a clear sign that you transitioned too fast.

2) Order dynamics

Depending on the market you trade, you have to make sure that you understand the different order types and also how to execute your trades. Demo is the ideal place for that because your actions don’t have any consequences.

Try to understand what the difference between a market and a pending order is. How does a stop vs. a limit order work. How can you place stop loss and take profit orders for your trades and what happens when price reaches those orders?

Just try out all different order types and observe what happens. You’ll very quickly understand what the different orders do and it’s surprising how many people don’t do this simple step.

3) Get a feel for market dynamics

Especially if you are a new trader, this part is key to avoid large losses and unnecessary trading mistakes. During your 3 months on demo trading, pay close attention to market dynamics, how price moves and note down everything that catches your attention.

Here is my checklist for things to look for when getting to know price and market dynamics:

When does price move the fastest and when doesn’t it move?
How do price movements differ across different markets, forex pairs, timeframes?
Which timeframe works best for your daily schedule?
How do news impact price movements? Which news are the biggest movers?
What type of price behavior do you feel most comfortable with?
Do you see lots of gaps and how can you deal with them?
Are you OK with overnight positions?

What demo trading can’t do
It’s so important to understand the limitations of demo trading and what demo trading can’t do for you and what you should not expect from it. The majority of traders will, however, look at the points below and still try to make them work with their demo trading – big mistake.

1) Validating your system

This is probably the cardinal sin of demo trading, yet so many do it. You can’t validate your trading method and the profitability of your trading strategy on a demo account. It does not matter how good your results are on a demo account, they mean NOTHING when you change to a live trading account.

Demo trading is like riding a bike with training wheels on; you won’t crash and hurt yourself too much but once you take the training wheels off you are not going to be a good cyclist.

As I said above, demo trading should only be used to get to know your platform, the way you execute orders and how price dynamics work; it can’t be used to confirm your method.

You might build a little confidence and also understand how to execute your trades within the scope of your trading method, but good demo results never translate to good live trading results.

2) Preparing you for live trading

Demo and live trading are two very different things and from a pure trading perspective they have nothing to do with each other. Once you have some live trading experience under your belt, you’ll know that the greatest challenges a trader faces are NOT related to following price and identifying a trade, but they are purely emotional nature and only exists because of the money involved. Here a short checklist of the things demo trading can’t prepare you for:

The discipline of waiting for days for the right moment to enter a trade
Dealing with the pressure once you are in a trade and the uncertainty
The emotions that make you stay in a loss longer and let you cut profits too early
FOMO and entering too early because you want to make more money
Not wanting to lose money and passing on valid trading opportunities
Being too greedy on the exit and not closing your profitable trade

Many traders will argue that you just have to treat your demo trading as if it was real money to get the best results. The problem with that is that it’s not possible. You will ALWAYS know that it’s just demo trading – you can’t fool yourself that easily.

The greatest danger of demo trading
The biggest problem traders who stay on demo too long have is that their undisciplined trading behavior becomes a part of their general approach to trading. A trader who isn’t punished for his bad behavior and who doesn’t feel the pain is more likely to adopt a sloppy and unprofessional attitude and once he transitions to live trading, he will inevitably lose his money.

You won’t hear this too often but staying on demo too long actually does more harm than good.

How to transition from demo to live
Now that you know what to do and expect in demo trading, here are some tips that will help you make a smooth transition from demo to live trading:

1) Start small

You’ll inevitably lose your first (few) trading account(s) so it’s important that you trade with money you can afford to lose.

At the same time, you HAVE TO MAKE SURE that the money you are losing is worth it. This means that you know WHY you are losing and what you can do to stop it. Losing money without learning your lessons is a waste of your money and your time and it will keep you in this loop for a very long time ever.

2) Protect your emotional capital

We said it already, but it’s so important that you really get this point: you’ll inevitably lose money the first year(s), but protecting your emotional capital is even more important. A trader who loses his motivation, the fun and the excitement for trading becomes overly negative and frustrated is very likely to give up on trading completely.

Make sure that you understand your motives, don’t set yourself unrealistic expectations and don’t be too hard on yourself. Enjoy the process.

3) Don’t focus on the money

You are not going to make money so it’s important that you focus on the right things during your early stages as a trader. Your top priorities should be developing discipline, trust in your rules and your system, building a strong trading routine and developing a passion for trading.

Those things, along with a strong and conservative money management approach, will make sure that you lay a solid foundation at the beginning which you then can leverage later on.
what we want: 1+1+1+1+1+1+1+1+1=9 <3
what market delivers: 1+2+8+7-4+0-5+8-4-5+1=9 :problem:

Failure is success in progress

Dr. Alexander Elder : successful trading should be a little bit boring.

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