Demo vs Live trading (2024)

Author: Joseph Jeffriess

Demo and live trading are two different scenarios when it comes to trading in financial markets, therefore, traders should not expect the same level of success in both.

Lack of Emotional Control

One of the most significant differences between demo trading and live trading is the emotional factor. In demo trading, traders do not have to deal with the emotional stress of losing real money. However, in live trading, traders risk losing their hard-earned money, which can cause them to become emotional and make irrational decisions. The fear of losing money can make traders exit profitable trades too early or hold on to losing trades for too long, resulting in lower profits or higher losses.

Different Market Conditions

Another reason why your results in demo trading are better than your live trading is due to the difference in market conditions. In demo trading, traders may not experience the same level of volatility and liquidity as in live trading. In live trading, the market conditions are constantly changing, and traders must adapt their strategies accordingly. Traders who rely on back tested strategies that have performed well in the past may struggle to replicate their success in different market conditions.

For example, a strategy that performs well in a trending market may not perform well in a range-bound market.

Slippage and Latency

Slippage and latency are two factors that can significantly impact a trader’s performance in live trading. Slippage refers to the difference between the expected price of a trade and the actual price at which the trade is executed.

Latency refers to the delay between when a trader places a trade and when the trade is executed. In demo trading, slippage and latency are not significant factors as trades are executed instantly.

However, in live trading, slippage and latency can cause traders to miss out on profitable trades or enter losing trades, especially in fast-moving markets or when trading with large positions. For example, if a trader places a buy order for a stock at $10, but due to slippage, the order is executed at $10.10, they may miss out on potential profits.

Similarly, if a trader places a sell order for a stock at $10, but due to latency, the order is executed at $9.90, they may incur a loss.

Psychological Pressure

Trading with real money can cause psychological pressure on traders, which can affect their decision-making ability. Fear, greed, and anxiety are common emotions that traders experience in live trading. These emotions can cloud a trader’s judgment and cause them to make illogical decisions, leading to losses.

Traders who can manage their emotions and make objective decisions are more likely to succeed in live trading.

For example, a trader may feel pressure to make a profit or to recover losses, which can cause them to make irrational decisions, therefore making a mistake, which can cause them to hesitate or overanalyze, looking for the perfect trade entry point, and end up missing an opportunity altogether.

Many of our traders find solution in dealing with the emotions derived from their trading by automating their trading approach. By using Capitalize.AI completely free of charge, our clients not only tackle the emotional part of trading, but also it reflects positively on their time availability. It is developed for people with no coding or programming skills and needs commands in simple, everyday English.

Lack of Accountability

In demo trading, there is no real accountability as there is no real money at stake. Traders can take risks and make mistakes without any consequences. However, in live trading, every trade has real-world consequences, and traders are accountable for their actions.

This can lead to traders being more cautious and conservative in their approach, which can limit their potential profits.

Overall, it’s essential to understand the differences between the two and to be aware of the factors that can impact your performance in live trading. Traders who can manage their emotions, adapt to different market conditions, minimize slippage and latency, and make objective decisions are more likely to succeed. To manage psychological pressure, traders need to have a well-defined trading plan and stick to it. This includes setting realistic profit and loss targets and adhering to a disciplined approach to trading.

Traders should also have a support network in place, including a mentor or trading coach, who can help them stay on track and manage their emotions during times of stress.

The information provided here has been prepared by Eightcap’s team of analysts. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and do not reflect the opinions of Eightcap.In addition to the disclaimer on our website, the material on this page does not contain a record of our trading prices, or represent an offer or solicitation for a transaction in any financial instrument. Eightcap accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Please note that past performance is not a guarantee or prediction of future performance. This communication must not be reproduced or further distributed without prior permission.