What is a Demo Trading Account in the Stock Market?

When you go shopping, do you try out the clothes you shortlist before actually buying them? Yes, isn't it? Or have you even served a dish that you have prepared for your guest, without tasting? No, right? We all want to be assured of the quality and this is what you can do with a demo trading account when entering the stock market as a trader.

A demo trading account is a trading account that is used for demonstration purposes of the primary trading process. It replicates the live trading platform where you can buy and sell securities without involving any real cash. There are other features as well that you will get with the real trading account such as technical analysis tools, a market screener, watch lists, portfolio monitoring and learning resources, and more.

With the advent of technology, now you can use these trading dummy accounts for learning and getting an idea of how the markets work in reality before you start putting your hard-earned money into it.

So, this article will help you understand how a demo trading account works, its advantages, and how it is similar and at the same time different from the actual trading account. Let's begin.

What is the Meaning of Demo Trading?

Demo trading can be referred to as the process of using a dummy trading account for learning trading with dummy cash. The entire process involves dummy trading of securities, using the tools and features available on the dummy account, and understanding how the trading arena looks.

With demo trading, a trader can also learn how to analyze stocks before buying or selling them in the market. They can learn to read the technical indicators and charts, which are also available with main demo trading accounts.

How Does a Trading Demo Account Work?

The demo trading account works on the virtual platform to create a replica of the real trading platform. This account creates a dummy for the real-time market, live streaming of stock quotes, where you can place buy and sell orders, modify them, and cancel if necessary. You can also use stop-loss and other forms of orders. You can see how the stock prices go up and down in the market, volume, and all other factors determining the stock price movements.

If your stock brokerage house offers a free demo trading account then you can use it without any fees or charges. All you need to do is activate the demo account and you can start. Though there are other online platforms, that offer demo accounts for trading, they often charge you subscription fees or other in-app purchases. So, it is always better to go for a demo stock trading account that is available with your stock brokerage house. Moreover, it helps you understand the trading platform that your stockbroker will offer you for real trading when you start.

Advantages of a Demo Trading Account

The advantages of using a demo stock trading account are:

• A demo trading account helps build confidence in a person who is interested in trading stocks but not aware of how to do it.
• It also helps in understanding the risks involved in stock market trading which a trader must consider
• It uses no real money, thus your hard-earned money is safe with a free demo trading account.
• Offers a realistic simulation of the stock market arena, which helps the new traders understand the pressure and deal with the market fluctuations.
• With this account, you can also start building strategies and test them as per your trading requirements.
• Even professional traders can use the demo account to analyze their trading approaches and test them before implementing them in the real market.
• It is a completely risk-free arena, where no real money of yours is at stake.

How Is Demo Trading Different From Live Trading?

It has been often observed that people having successful trading experience on demo stock trading accounts, find it hard to trade in the live or real market. There are multiple reasons behind the same a demo account may offer a similar kind of environment and features but the underlying process that goes on in a live market is not the same in a dummy account.

Firstly, demo accounts often offer smooth execution without considering the slippage present in the market. In a live market, it is not always possible to fill market orders at the desired price, but with a demo account, it happens smoothly. Thus, when a person enters the real market, may find it difficult to tackle the slippage issue.

Then in a live trading session, your order will be queued and execution only happens when orders match but in a demo account, it is hard to understand because you cannot see which order is being executed first. 

Finally, a demo account may replicate the live trading environment, but traders in the real market often are carried away by emotions of either earning huge profits or losing money in the market. With real money, comes real emotions and this cannot be understood with a demo trading account. 

Conclusion

To conclude, a demo stock trading account can be quite beneficial for the newbies in the market as well as for pro traders. However, while this dummy account can help you learn and understand the market well, it cannot help you understand the emotions of earning or losing money in a market or the actual stress level in live trading.

FAQs on Demo Trading Accounts in the Stock Market

1. Is demo trading really useful?

Yes, demo trading is useful if you use it for learning about the trading process, testing trading strategies, and understanding how the markets work. However, there are limitations to it, which you need to consider.

2. Can a user earn money with a trading demo account?

No, there is no use of real cash in the demo trading account, thus, there is no option for earning real money with it.

3. Where can I get a free demo trading account in India?

Often stock brokerage houses offer their potential clients free demo trading accounts when you open a Demat account with them or subscribe with them.