Demo vs Real Account in Binary Options: What Changes and What Doesn’t
Demo vs Real Account in Binary Options: What Changes and What Doesn’t
At first glance, you might think that the only difference between a binary options demo account and a real account is the fake and real money, while there are many more differences between these two when you take a closer look at them.
What Changes?
As a matter of fact, the surface remains the same, so that in your eyes they would look identical. Appearance features such as the charts and the buttons are in their place, analyzing tools like RSI and Moving Averages work the way they should, the payout system usually stays the same, and you are trading the same currencies you were trading before. It’s really a trick so that your mind finds both experiences of demo and real account identical and ignore the hidden changes you might not realize with eyes only.
What changes?
This is where you should take your expectations down because it’s where traders usually lose money. It’s simple, really. The fact is that these elements below are not present in a demo account, so you can’t actually prepare for something that you didn’t know existed or wasn’t in your training program.
- Emotions and Psychology
- Demo: You see a trading entry point, you enter, and that’s it. You don’t hesitate. Why would you hesitate over virtual money without value, which you didn’t work for? The missing factor here is emotions such as fear of losing your money and stress, which aren’t present in a demo account.
- Real: You see a setup, but then you start hesitating because in a real account, real money is involved and real money can be lost, so your emotions might take control for a second or two. The seconds you lose over hesitating change the entry point of your trade, which might make it too late to enter. This small difference can make you lose an amount of capital.
- The Slippage
- Demo: In a demo account, everything is flawless. When you click and order like “Put”, it is instantly filled without a second of delay at the price you wanted. The server simply records your request.
- Real: Orders in live markets with real accounts have a procedure where the broker has to process orders against their risk management system, which takes milliseconds. In a live market, prices can move even during such small moments, and even worse, these kinds of slippage can turn a winning strategy into a losing one.
- Processing Delay
- Demo: Brokers usually don’t reject trades in a demo account. You can place orders however you wish.
- Real: If the market speed is high, the broker’s server might reject your order and try to give you another offer (requote), causing you to miss a perfect entry and lose the chance to earn money with that shot.
- Liquidity
- Demo: In a demo account, if you place an order of any size, the system is just going to accept it due to the fact that it’s fake.
- Real: You might really want to place a bet like one of the ones that you might have done in a demo account, but in a real account, there might not be enough volume on the other side to match your bet therefor the broker might reject and offer a requote.
Brokers In Demo and Real Account
The real markets are full of noise and data, which makes it harder to trade, and some brokers often round up the numbers and “smooth” the price feed so it looks cleaner and easier to trade with.
Another point worth mentioning is that some brokers manipulate the demo account to ensure high win-rates so that you deposit. This is less common with regulated brokers, but keep in mind that it’s a common thing in unregulated ones.
Cautious steps
Aside from training on a demo account to prepare for the real deal, keep in mind that transitioning from a demo to a real account itself is a process that you need to be careful about. Before transitioning, check if the broker is regulated or not to ensure your capital is safe with them; also, start small and do not deposit a big amount right away until you are sure about the broker.
If you want to practice in a low-risk environment first, consider using a binary options demo account before switching to real funds.
Conclusion
Though demo accounts are there for you to train and get ready for real-time trading, there are still missing factors that make a huge gap between both accounts that you need to consider, and if you want to succeed, keep these differences in mind and try to take them into use.
References
- https://www.nber.org/system/files/working_papers/w11243/w11243.pdf
- https://web.mit.edu/Alo/www/Papers/online.html
- https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/fraudadv_binaryoptions.html
- https://www.cftc.gov/BinaryOptionsFraud/index.htm
- https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors
- https://www.fca.org.uk/consumers/binary-options-scams
- https://www.fca.org.uk/news/statements/fca-confirms-permanent-ban-sale-binary-options-retail-consumers
