Raj has recently started earning and wants to invest his savings in share market. However, since he has no prior experience, he is sceptical about making the move. While he spent a lot of time reading about share trading and its benefits, he is aware that possibilities of losses are equally there. Is there a way he can practice in real share market without putting all his money at risk in one go?
What is demo trading account?
The answer to Raj’s concern is – demo trading account. A demo trading account is a virtual trading account that helps one get exposure to a real share market where stocks can be traded with virtual money. Everything else is real- the price fluctuations, the dips, and peaks, everything. It’s like being in the real market environment with all the facilities available- option to buy, option to sell, option to hold the securities, do intraday trading, delivery trading, use the charting tools, do real-time analysis, etc. The only difference being money is virtual and the shares that you hold are dummy shares with real prices.
Benefits of demo trading account
The benefits of demo trading account are manifolds. As with the case of Raj, a new investor, it is the best platform to get started before putting his money in real markets. It will help him get familiar with the trading platform and get comfortable with the various items available on the trading screen. But not just for new investors, it also holds importance for professional traders as detailed below:
- For New Investors
- New investors can practice in a risk-free environment and learn the basics of placing buy and sell orders, such as – Market Order, Limit order, Cover order, etc.
- They can learn how to use charts to do analysis and make the trade decisions
- Can understand how trading inequities are different from trading in Futures and options, and how to make trade decisions in different segments
- They can get an understanding of how margins work in share trading. An incomplete understanding of margins puts a lot of new investors into serious losses. With a demo account, this understanding can be developed in a systematic way by repeated practice.
- Many demo trading accounts also builds communities for its users to connect like minded people to learn and discuss their findings
- For Professional Traders
- Professional traders can develop and test new strategies of trade by doing a test run on demo accounts before implementing in real life trade
- They can also do forward or backward testing to evaluate the effectiveness of any new strategy
Opening a demo account
There are a lot of choices to open an online demo trading account. Economic Times provides an option for it; similarly, there are sites like Dalal Street Investment Journal that provides a demo trading account along with discussion forums for its users. To open a demo trading account, you need to register at websites offering demo trading accounts. Generally, they will ask for your name, email id, and mobile number to open an account. Most provide services for free. Once your account is opened, you will get some virtual cash in your account to start trading. They will provide a trading platform that will show the real –live market price movements. You can start using virtual money to do the transactions.
Differences between demo trading and real trading
While demo trading account does provide a great way to learn and practice trading there are some differences with respect to real trading that you should be wary about:
- Demo account gives you option to start with any amount of money. However, in real life, you may not have the same amount of money. To make the learning more realistic, it’s better to practice with same amount you will have in real life
- In demo account the brokerage charges may be different from what you will pay in real like. Brokerage is the fee charged by your stockbroker for buying and selling shares.
- The execution speed on demo accounts are quite swift, however, in real life there might be slippages, which can result in order not getting executed at the price you saw on screen while placing a market order.
Overall, a demo trading account is a fantastic way for new and pro traders to practice trading in a risk-free and safe environment. Anyone keen to learn the intricacies of share market trading should try and draw its benefits. If you already have a good understanding of share market trading why not open a demat and trading account and start your investment journey?
Disclaimer: Investments in securities market are subject to market risk, read all the related documents carefully before investing.