Broker to Trading

CFDs are Contracts for Difference which allow the trader to trade a financial market without owning it. A CFD exposes the trader to risk of loss, which is magnified with increased leverage, when trading on a real account. However it is possible to open a CFD demo trading account (also known as a virtual trading account, practice trading platform and a trading simulator), where the trader trades CFDs using virtual money and does not need to deposit any money to trade.

Virtual money is not real money and cannot be used other than in the trading account. A demo trading account is free to use, it does not require a deposit and there is no cost to trade markets, other than from the virtual funds added by the broker to the demo account.

Some brokers let the trader open a demo account separately from the real trading account and these may expire. However other brokers attach a demo trading account to the real account so it does not expire as long as the real account is active, allowing the trader can switch between accounts whenever they wish. A demo account may give access to all trading platforms, though brokers may require separate applications for some platforms.

There are a number of potential reasons to use a demo account. Firstly, it allows the trader to practice trading. All traders can test out strategies, different indicators and other trading techniques with a demo account. It should be noted that because the trader performed well on the practice trading account, does not mean they will repeat these results when trading with a real account.

There are a number of possible reasons for this, including that the virtual funds in the real account may be much larger than the size of the real account as well as the difference in experience of using a real account which is risking actual money versus a demo account which does not risk real money. A possible alternative to using a demo account is to trade on a real micro or cent account, but this exposes the trader to the risk of loss of actual capital.

Secondly, for all traders whether experienced or beginner it lets them familiarise themselves with the broker's online trading platform. The trader does not want to have to work out how to place or close orders, track orders, or use the charting or other tools in the middle of a trade on a real account. There can be a temptation to jump in and start trading, whether the trader is a beginner or experienced, but it may be a good idea to test the platform thoroughly before using it. This may help minimise errors which can be avoided.

Finally, it can be useful to take a break from real trading and work through issues with a demo account from time to time. This can be coupled with continuing education whether by a course, trader events, webinars, or just reading a book.