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The Complete Guide to Demo Trading 

Last Updated: July 13, 2022

By Jet Toyco

This post is written by Jet Toyco, a trader and trading coach.

So, you went to a broker’s website and decided to open a forex trading demo account before risking real money.

Good choice!

However, there’s something about demo trading that might cost you money in the future.

That’s why in this guide…

You’ll discover the good and the bad of demo trading and how you can use it to your advantage to make money in the long run.


But first…

What is Demo Trading and How Does it Work

To put it simply…

Demo trading lets you use your broker’s platform without risking real money on the line.

It means that you get to trade using virtual money, just like a trading simulator.

What does that mean?

It means you get the chance to:

  1. Familiarize with your trading platform
  2. Smash that buy and sell button as many times as you want to get a feel of what “trading” is
  3. Get to test your strategies without losing actual money if things don’t work out
  4. Get into demo forex trading to nail down and polish your trading routine before risking real money

Excellent, am I right?

But of course…

It also means that you don’t get to put actual cash in your pocket either.

That’s right. You can’t withdraw actual cash from your demo trading account (duh).

Now here’s the thing:

As sexy as demo trading sounds…

The truth is that it might help you lose than gain money by the time you trade with real money.

Let me explain why in the next section…

Why Demo Trading Can Set You up for Failure

Almost all seasoned traders out there will share a similar thing:

They experienced losses when they started trading with real money, even if they’ve made profits on their forex trading demo account.

How so?

Is it because their broker is scamming them?

Maybe their strategy doesn’t work in real-time?

Perhaps the forex trading practice isn’t being taken seriously?


Let me show you the real reason why…

No emotional attachment to money

Let’s say you had a $1,000 loss on a single trade.

On a demo trading account, you’ll probably say:

“Eh, I’ll just reset my virtual account and try again.”


You can’t say the same thing with a live trading account, can you?

Rather, you’d feel frustrated.

You’ll start to doubt your strategy.

You’ll start to find shortcuts and scour the internet for strategies and trading robots.

See what I mean?

That’s why it’s essential to focus on nurturing good trading habits on demo trading before you trade live (which we will discuss later).

No risk management in place

If you’re inputting random numbers on how many lots or shares you want to buy…

Then you’re gambling and not treating trading as a real business.

How come?

Because if you’re not sure how much money you’re potentially going to lose before you enter the trade, or don’t know where you will exit when you’re wrong…

Then you wouldn’t know how much you can potentially make and wouldn’t know when you will exit when you’re right.

Now, what is risk management, you say?


It aims to keep your losses small so that your portfolio can live long enough to experience gains.

And if you want to learn how to apply risk management step-by-step…

Check this out: Forex Risk Management and Position Sizing (The Complete Guide)

Spending too much time on demo trading

I’m not going to lie to you…

Being on demo forex trading doesn’t make you a real trader.


It’s because your response to losses in a forex trading demo account is far different from trading real money.

And when you’re trading with real money…

How you react and take action from losses (which all traders have at some point) is what will truly define you as a trader.

So if you spend months or even years demo trading, it’s not the money you are missing.

But your growth as a trader.

So with that said…

Does that mean demo trading is a waste of time?

What if there’s a way to make demo trading work in your favor?

Fortunately, there is.

And that’s what I’m going to show you in the next section.

Keep reading…

How to Demo Trade Properly and Set Yourself up for Live Trading Success

It doesn’t matter whether you’re someone who lost money live trading before and stopped or an entrepreneur-newbie trader who has never live traded.

This step-by-step process can propel your results and experience trading as pain-free as possible.

Are you ready?

Let’s begin…

Step #1: Have a trading plan

Having a trading plan is the same as having a business plan.

It is the determining factor whether you’ll make money or not in the following months or years to come.

Here are some questions you must answer:

  • What is your trading method?
  • What is your trading style?
  • Which markets will you trade?
  • What timeframe will you trade?
  • How will you exit when you’re wrong?
  • How will you exit when you’re right?
  • How will you apply position sizing before you enter the trade?

I know those questions can be intimidating.

But lucky for you, there’s a “cheat sheet” on how you can answer those questions.

And they’re all here in this article: How to be a Profitable Trader Within the Next 180 Days (Even if You Are New to Trading)

Makes sense?

Step #2: Have a trading routine

It’s a myth that you need to have the time to monitor your trades all the time to be a trader.

That’s true!

You’d probably get better results if you spend most of your time away from your charts.

That’s why you need a schedule on when and when not to check in on your trading business.

Here are some ideas…

Example 1: Full-time employee, work from 9:00 AM to 5:00 PM

  • 8:00 AM-8:30 AM = Look for trading opportunities and place limit/stop orders
  • 12:30 AM to 1:00 PM = Check your portfolio and see if you’ve executed trades properly
  • 6:00 PM to 6:30 PM = Journal and review your trades

Okay, so what if you have time on your hands and want to be a day trader?

Example 2: Full-time stock day trader

  • 9:00 AM – 9:30 AM = Look for trading opportunities and free yourself from distraction
  • 9:30 AM – 12:00 PM = Execute your trades free of distraction as the market opens, and call it a day once it enters its break (as most movement is present at the first half of the session)
  • 6:00 PM to 6:30 PM = Journal and review your trades


Your goal is to know when and when not to check your charts and find a convenient schedule that won’t ruin your daily responsibilities.

It’s all about time-blocking.

Pretty cool stuff, right?

Step #3: Execute while demo trading

So, how long should you demo trade?

One month?

Four months?

One year?

The truth is that it depends…

If you’re a day trader, then you may want to consider demo trading for one month

If you’re a swing trader, however, then you may want to consider demo trading for three months

The concept is that the higher the frequency of your trades are, the less time you should do demo trading, and vice-versa if the frequency of your trades is lower.


Your goal in demo trading is not just to test whether your strategy works.

But to see whether or not your trading plan or trading routine is for you so that you can make tweaks along the way.

Got it?

Step #4: Start trading live as small as possible


It doesn’t matter whether you want to start with $100, $500, or $1,000.

What matters is that you get out of demo trading.

Start trading live.

Start trading small.

And start practicing good trading habits.

I know the feeling of being nervous when live trading for the first time, and that’s okay.

But if you start small first to build confidence, instead of going all-in with your family’s wealth (I damn hope not)…

You’ll find yourself in an excellent spot to start trading and put yourself in an environment to keep on improving as a trader.

Sounds good?


Even though demo trading can be misused and have its “traps” for new traders out there, it is never a waste of time as long as you know why you are demo trading in the first place.

With that said, here’s what you’ve learned today…

  • Demo trading lets you use your broker’s trading platform risk-free with virtual money.
  • Demo trading can set you up for failure if you don’t have a trading plan or strategy to test.
  • Demo trading can set you up for long-term success if you develop good trading habits before you start trading live.

Over to you…

What tips would you give to new traders when they are demo trading?

What do they need to know before they start live trading?

Leave a comment below, and I’d love to hear what you think…

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