When investors enter the stock market, they are fearful of incurring losses while stock trading. For example, doing intraday trading can result in losses if the stock is volatile.
In such a scenario, a demo trading account can immensely help reduce losses and ensure you make informed investment decisions. A demo or paper trading account is a way to practice trading stocks without risking real money. This is ideal for beginners to learn how to use an online trading platform or brokerage firm without incurring any losses.
A demo or trial trading account allows you to set up a free account with your chosen brokerage firm. You can then simulate real trades, experiment with different trading strategies, and end the session without losing any money. Let’s get to know more about it.
KEY TAKEAWAYS
- A demo trading account is a free practice account offered by trading platforms. It allows potential customers to experiment with the platform without committing any real money.
- Demo accounts are used by a variety of trading platforms, including stock, forex, and commodity exchanges.
- Experienced traders can use demo accounts to test new strategies before applying them to real-world trading.
What Is a trading demo account?
Demo trading is a mechanism where investors use fake money to trade and learn about stock market trading. When new investors enter the stock market, they are fearful of losing their investment to losses in volatile stocks. However, it is also a possibility that the stock may result in profits. Hence, they use demo trading to understand what would have happened if they had used real money and to have practical knowledge of stock market trading for future trades.
Every investor with an account with a stock broking platform can utilise demo trading. However, as investors do not use real currency, they can not use a real trading account. Hence, investors who want to make a demo trade are required to open a demo trading account in India. A demo trading account has all the features of a real trading account; it is just that the money you use is not real.
Since investors use fake money, there is no risk of any loss and no potential for any profit. All the demo trading accounts are free and work as a gateway for investors to start trading with real money when they feel comfortable and have practical knowledge of placing stock market orders and trading.
Investors can use a demo trading account to hypothetically trade in all the investment instruments within various asset classes, such as stocks, currency, and derivatives.
How does a demo trading account works?
A demo trading account works by allowing investors to create a demo trading account with virtual money. All investors have to do is sign up for a demo trading account, and the stockbroker credits virtual money into the demo trading account. Once credited, investors can use the fake money to create trades and see the results.
How to open a demo trading account?
Opening a demo trading account in India is simple and includes the following steps:
- Visit a preferred stockbroking app or platform and create an account.
- Navigate to their free demo trading account section and enter required details like name, email ID, etc.
- After successful registration, you will receive a notification that you can use your free demo trading account.
What is the focus of a demo trading account?
The main focus of a demo trading account is to allow new investors to have a basic understanding of how the securities market works. For example, if you have just opened a trading account and want to invest in stocks, you can open a demo trading account and hypothetically invest in stocks using fake money.
You can try out all the features of the Demat account, such as order types, and analyse the results. The results will help you learn about your mistakes, and you can avoid repeating them when trading with actual money. Over time, with trial and error, you can create an effective investing strategy based on extensive analysis of the results from your demo trading sessions.
Another focus of demo trading accounts in India is on experienced investors who want to maintain their securities market touch. An investor may be active for a specific period, but during a bearish market or lack of funds, the investor may pause their investing activities.
However, using a demo trading account, such investors can still make trades using fake money to keep in touch with the current market trends and make informed investing decisions once they start investing again. For this, stockbroking platforms offer the facility to turn an active account into a demo trading account.
Can seasoned traders use demo trading accounts too?
Demo trading accounts in India do not have any eligibility requirements. You can be a seasoned investor and still use a demo trading account to see the results for a trade you are thinking of actually making.
For example, if you want to buy 100 shares of a specific company but feel the share price may fall in the next two days, you can use a demo trading account to create this trade without using real money. If, after two days, the share price is stable or has increased, you can use real money to invest, thereby mitigating the chances of losses.
Benefits of a demo trading account
Here are the benefits of a demo trading account in India:
- Fake money: Investors can see real results of a trade they may have executed without risking real money. It ensures there is no potential for any loss.
- Practical knowledge: A demo trading account allows investors to do demo trading to see what would happen if they used a certain strategy. Over time, this allows investors to better understand investment instruments and strategies.
- Free of cost: Demo trading accounts are free of cost, making them one of the most affordable options for gaining practical securities market knowledge.
Conclusion
A demo trading account is unique and allows new or seasoned investors to trade without using real money. It can be used to either gain practical investment knowledge or stay abreast of the current market trends. If you are slightly unsure about your trades, it is always wise to open a free demo trading account to mitigate your chances of losses.
