Cryptocurrency trading demo account (benefits and disadvantages)
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Digital currencies have gained a lot of popularity over the past years. Therefore, it is not surprising that people started to invest in the digital currency market, but the obstacle that prevents most of them from doing so is the absence or low level of knowledge of the methods and how to trade digital currencies.
There are also people who desperately want to start investing and trading in digital currencies, but they are afraid of the risk, which is non-existent with demo trading accounts. These demo accounts give beginners and new traders the opportunity to get used to the market and trading procedures without risking capital, using only fake funds. All you have to do is register and start learning and practicing trading in a mock only way.
In this article, we will help you to know all about the cryptocurrency demo account, its benefits and drawbacks, and finally the best cryptocurrency trading demo account to make sure that you are learning the right way.
What is a cryptocurrency demo account?
As indicated by the name, it is a practice dummy account that allows you to practice trading cryptocurrency. As a demo account trader, you will not risk your real money and you will not be required to deposit any funds in the demo account. All you need is to simply create an account by providing some details such as your email address, name and sometimes phone number.
In general, demo accounts provide you with a trading experience similar to that of a real cryptocurrency trading account, giving you the opportunity to get used to trading with market conditions such as commissions and spreads with leverage and margin. For cryptocurrency trading demo accounts, you will be allowed to trade Bitcoin virtually with possibly other assets and their denominations depending on the broker you will be dealing with.
In your demo account, you will often get either a set cash amount or an adjustable cash amount with an adjustable margin as well. Assuming you get $10,000 in virtual money, you are free to use it however you like. Even if you lose all the money of your dummy account, you can update it by contacting customer service or adjusting this value in setting tab or you can create another new account because you will not pay fees for it. You can even create multiple accounts to test different strategies whether it is manual or automated with bots.
Why should I use a demo account for cryptocurrency trading?
When Bitcoin was created in 2009, not many people knew it existed and it was not used for any transactions at the time. With the passage of time, Bitcoin started to be adopted all over the world, but still, the majority of people have doubts about this new asset and the whole digital currency asset class in general.
However, the prices of many cryptocurrencies have soared, reaching gains in the thousands. This provides a new opportunity to trade multiple assets for both traders and investors alike while rewarding those who invested earlier.
With all the uncertainties surrounding it, another added fear of cryptocurrency trading is that it will eventually be worthless, which will lead to loss. In order to overcome this fear, having a cryptocurrency trading demo account allows you to try trading both Bitcoin and other Altcoins in the short or long term without any risk. This should give you confidence in trading cryptocurrencies since it is almost the same as trading other asset classes. You can buy and sell these digital currencies or you can also make transactions including options and futures contracts and you can also use margin and leverage.
Since Bitcoin and other related assets are a little different, you will learn more about each currency since most of them are paired or traded against Bitcoin. These are called cryptocurrency pairs. There are a variety of cryptocurrency pairs such as those associated with Ethereum and Tether, which you will undoubtedly learn about as well as everything related to trading.
Trading terminology is a bit different, too. In the world of cryptocurrency, you will come across words like satoshi, meme coins, and mining.
The level of volatility in cryptocurrencies also differs from the level of volatility experienced in common stocks or other asset classes because it is usual to see many daily gainers. And with volatility, of course, comes great risk because this new form of currency can go down as fast as it can go up. Having a demo account will prepare you for all of these and teach you how to work them to your advantage.
Benefits of a demo account for cryptocurrency trading
1. It allows you to see how price action develops and to understand the risks involved in leverage:
In general, new forex traders like two things. The first is that forex trading moves relatively less compared to other asset classes such as stocks or commodities. However, they are also impressed by the potential for large price fluctuations when using the very high leverage offered by forex brokers especially when important economic announcements such as interest rates or NFP are published.
In the same way, a cryptocurrency trading demo account should allow you to understand that leverage is a double-edged sword. You can make a lot of money fast with it, but you can also lose everything on a bad deal. Professional traders rarely use leverage higher than 5:1, even if the broker offers them higher leverage.
2. It allows you to understand how the platform works and get acquainted with the broker’s trading requirements and conditions:
A demo account is the key to knowing how orders are placed, analyzing different types of technical analysis charts, knowing different lot sizes, margin used for each leverage, etc. It is important to understand before starting real trading.
3. It allows you to develop your own trading strategies:
Demo mode provides live quotes from all markets and a virtual portfolio to practice under real market conditions. So you can learn how to analyze price action, chart numbers, support/resistance lines, and correlations between currency pairs as well as see how volatility changes depending on market hours and different assets. Hence, develop your own trading strategies. You can also test automated strategies using historical data and optimizing settings.
You will definitely see that the profit potential is huge, but if you do not use strict risk management rules involved in this type of investment, you can lose all your money very quickly.
Disadvantages of a demo account for cryptocurrency trading
1. You will not develop the healthy fear you need to succeed in real trading:
Even if you can make money with a demo account, you won’t necessarily be a good trader when you move to trading with a real account and real money. In a controlled environment where losses mean nothing, emotions about losses and even profits have very little influence on your decisions. So you will also need real world experience to understand and control the psychological side of trading. Therefore, you should open your first real account with a relatively modest amount of money because you may lose everything if you do not control your emotions while trading at first. This is the price to pay to get fully trained as a new trader.
2. You can either develop complacency or develop bad habits.
Demo accounts can create a false sense of confidence. New traders generally have difficulty managing risk properly with a demo trading account. They also tend to take more risks than they normally would with real money, and this approach to trading can lead to them building and acquiring bad trading habits that may make real trading difficult for them.
3. You don’t know how you’re really going to act when you start risking real money:
Cut your losses quickly and let your profits soar!
This statement is true, but in practice it is often very difficult to implement it on a real account. The hardest thing to do when trading is not to find good entry points, but to know the right time to exit. Again, when the psychological aspect comes into play, it is very easy to take profits, but it is not the case when it comes to incurring losses (which can be turned into profits).
Frequently Asked Questions about “Cryptocurrency Trading Demo Account”
How do I start trading bitcoin?
Beginners should focus their time and effort on learning cryptocurrency trading. One of the best ways to learn trading is to get a cryptocurrency trading demo account. There are many free resources online that can help you understand how the cryptocurrency market works and learn the basics of technical analysis.
In this way, you will be able to hold on to your recently purchased bitcoins as you learn a new skill and if done correctly, you will be able to trade profitably and will increase the size of your investment portfolio.
Who should trade cryptocurrency with fake money?
Investors and novice traders who create an account on a Tadawul exchange for the first time should trade cryptocurrencies using a demo account with only virtual funds. The use of dummy training funds allows the trader to understand the features of the platform and learn how to trade Bitcoin and other cryptocurrencies without losing any capital.
Are cryptocurrency demo trading accounts free?
Stock exchange platforms often offer new traders opportunities to trade paper or get demo accounts to test for free. This enables the trader to get used to the user interface before making the actual deposit. In most cases, you don’t need to register another new real user account and you can use the same login details to create the real account too.
How is cryptocurrency traded using virtual money?
Trading cryptocurrency with a demo account is similar to trading cryptocurrency with real money. To start trading with the demo account, you have to choose a broker and then register for an account by following the steps and directions.
Does Binance have a demo trading account?
Binance does not offer a demo trading mode that allows users to try out the trading platform without making a deposit. Users need to deposit fiat currencies into the account to start trading on the exchange.
Can you try demo trading with Coinbase?
Coinbase is specially designed for beginners who want to start trading cryptocurrencies, however the platform does not offer a demo or paper trading account on the platform. New investors will need to make a deposit to access all the features offered by the exchange or use another platform that allows demo trading.
Summary
Having a demo cryptocurrency trading account is your ideal opportunity to learn and practice trading and know its secrets and intrigues without risking real capital. Use this opportunity well to build and enhance your skills as a trader and make sure to build accurate strategies and good trading plans.
At the beginning of your career in digital currency trading, the focus should not be on making money as much as it should be on learning, building strategies and plans, getting used to taking risks and learning how to manage them.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.