Demo VS Live

[antonisk]

I was just wondering “why do I always make huge/good profits on my demo account”.

 

[Black Bird]

I was just wondering “why do I always make huge/good profits on my demo account”.

Simply because there is no emotional attachment on the Demo account.

 

[Pharaoh]

Emotions can be a big part of it. There's another aspect also. Demos generally are much less likely to experience slippage and requotes. If you make trades for only a few pips, this can turn a profitable strategy into an unprofitable one.

 

[antonisk]

I do understand the effects of emotion and phycology referring to the trades. Thus the only way to really test any strategy is to trade a live account thus losing a couple of K first?

 

[WaveRider]

Maybe 2K. Some accounts can start with a smaller amount. A professional trading class is $3-7K, so maybe 2K is a bargain. If you had a 2K account and traded dime pips, you wouldn't need to sacrifice the whole account. Ironically, that's about the right position size for that account anyway.

 

[Black Bird]

Thus the only way to really test any strategy is to trade a live account thus losing a couple of K first?

You may lose/win a few K at first you may blow an account(s) you may not and so on. That is the nature of Forex and that is why it is classified as gambling in the UK and wrapped under Spread betting so, just like gambling, you don’t pay tax on any profits.

Whether you win or lose at first it is not important. What is important is the end result on the long run. It is possible to have 95% of losing trades and still end up with a tied profit. The trick is to cut your loses short and let your wins run. Also, it is possible to have 95% of winning trades and still lose money. That is why when unscrupulous sales people are bragging about strategies that win 85%, 90%, 95% and so on of the time I just ignore them.

I started with less than a K, about 2 years ago, with a broker where the minimum stake was £1, and in a short time I turned my account to about 4.5K before I began to have larger loses than wins. I’m still in profit right now but nothing near to make living. Hopefully one day I’ll get there.

Good luck

 

[sassysandra]

Emotions can be a big part of it. There's another aspect also. Demos generally are much less likely to experience slippage and requotes. If you make trades for only a few pips, this can turn a profitable strategy into an unprofitable one.

The other important thing to consider is latency, the latency of demo servers tends to be less because trades do not hit the dealing / trade terminal or in the case of MT4 the bridge. The reduced latency will give you the illusion of better fills when in practice your may not get such goods fills.

 

[Pharaoh]

Good point.

And then, there's always the very unpleasant possibility that demos could even be rigged to have narrower spreads, differential slippage in the customer's favor, etc.

 

[sassysandra]

Hi Pharaoh

Absolutely correct however the discrepancy between demo and real price feeds is becoming less apparent as retail clients cotton onto this trick. Slippage differences on the other hand are difficult to ascertain as they depend on a number factors including market conditions. The primary causes of slippage are:

1. Latency (mostly bridge delays - MT4 centric)
2. LP rejections (this happens sometimes with aggregated feeds)
3. Market Gaps - the most common cause
4. Use of "black hat" market maker systems like the virtual dealer plugin.

 

[Pharaoh]

The virtual dealer plugin is what I was referring to. There's nothing to stop it from being set to give positive slippage in demo accounts instead of negative slippage. I wonder how many brokers have pulled this stunt.