Why Is Demo Trading Bad for You?
What is Demo Trading?
Buying and selling stocks and shares are risky waters to dabble in if you have no prior experience or idea of how to do it. Most people would prefer to learn to swim in the safe containment of a swimming pool rather than being thrown into the sea where there is real danger. Certain brokers provide potential traders with access to virtual stock markets and give them virtual money to experiment with. This is known as a “demo trading account”. The manner in which the stock values rise and fall on these virtual stock markets is controlled by algorithms and have little or no link to what is happening in the real world stock markets, although they are designed to simulate situations that can possibly arise in real life.
What is it’s Purpose?
The purpose of allowing potential traders to experiment with ‘buying and selling stocks’ in a virtual environment with virtual money is to allow them to get a rough idea and feel for how the actual stock markets work in real life. It can be useful in helping somebody decide if they really want to progress to using real money and trading in real stocks and shares.
How long should one use Demo Trading before Starting Real?
There are varying views on this. Some experts argue that nobody should involve themselves in demo trading at all, and the only way to learn is the hard way, i.e. being thrown in at the deep end, and launching yourself straight into the real stock markets. Others maintain that a short period of experimentation with demo trading can be beneficial, not least in allowing the potential trader an insight into the way it affects their emotions, stress, lifestyle etc. It can be enough to let you know that stock trading is NOT for you, and you will not have spent a single paisa. Even the experts who are in favour of a little bit of demo trading, unilaterally seem to agree that indulging in it for too long can be detrimental in the long run.
Why can it be Bad?
Trading in stocks and shares can be incredibly stressful, time-consuming, time-sensitive, and emotional. It takes a certain kind of person who can manage the mental and physical strains that trading can bring with it. Psychologists believe that trading in demo accounts does not trigger the same emotional response as real-life trading due to the fact that demo accounts do not use real money, and there is no actual benefit or threat to the trader. Real money cannot be lost or gained, therefore an amount of apathy will present itself. In real life, there is no place for apathy as a bad trade, or a missed opportunity can have devastating consequences.
What is the Alternative to do Demo Trading?
Another option for new traders, which is recommended by some experts, is to go straight into trading in a live account but to begin with micro-amounts. An initial deposit should last for a substantial amount of time and will give the trader real-life experience from the offset. Trading in micro-amounts minimises the risks as the losses can only be small, but the experience of the real-life market is instant, and valuable time has not been wasted in playing with demo accounts which can themselves be environments where bad habits (which die-hard) are learned, and a false sense of safety can encourage risky trades. There is really nothing like the real thing, to teach you the real thing. As Warren Buffett has said “the more you learn, the more you earn”, which is quite right, but you need to ensure that you are learning the correct habits.
If you are interested to know more about demo trading in India, and its alternatives, GOODWILL INDIA will be able to help you. We provide expert advice and help for new traders or those people who are considering becoming new traders. We have special training courses specifically designed to ensure that potential new traders know exactly what they are getting into, and to teach them good habits from the very start. Please head over to our website at https://gwcindia.in/ or speak to one of our friendly advisors directly on +91 – 44 – 4020 5050.