Do you want to try out binary options trading, but you are afraid of using real money? That’s when binary options demo accounts come into play. Try out the brokers with ‘play money’ and deposit only if you like that broker.
What Is a Binary Options Demo Account
To trade binary options, you need to create an account with a Binary Options Broker. This is an absolute requirement. In such an account, you deposit money, receive bonuses, and trade with your deposited capital. This common term for this account type is “Real Account.”
However, this is not the only type of account offered by most Binary Options Brokers. Another type of account offered is a Binary Options Demo Account. This account type bear many similarities albeit also having stark contrasts to the real account type described in the previous paragraph.
A Binary Options Demo Account is an account type that is able to perform Binary Options trades without real money. Consequently, all profits and losses resulting from trades placed with a demo account are virtual or unreal. For most brokers, that is the only difference between a demo account and a real account.
Therefore, with a demo account, you get free money or to put it accurately, free credits to trade binary options. You also get full access to the exact same assets (stocks, indices, and currency pairs), market activity, forms of options trading (traditional call/put, touch, spread, range), and trading tools that you would have access to with a standard real account.
Importance of Binary Options Demo Accounts
So why would anyone want to use a demo account and why do binary brokers offer this account type?
Binary options has a huge appeal—fixed huge payouts, possible partial refunds of lost capital, and fast returns/turnover rate. However, it also carries a huge risk of losing money just as quickly as you could make profits.
Thus, it is important to have a good feel of how it works and how to trade, even after rummaging through tons of book/e-book pages, blog posts, tutorials, guides, forum threads, podcasts, and videos.
An adds-on experience to practice what you have learned beats any pent-up theoretical knowledge you may have, and a demo account is perfect for this purpose.
- Test Run
It is common industry knowledge that binary brokers offer varying platforms to trade. These platforms have varying degree of complexity, pattern of use, toolset, UI design, and capabilities.
When choosing a broker, which in our books is just as important as investing real capital, it is usual to have select brokers at the end that pique your interest. Furthermore, one of the deciding factors when choosing a broker is the broker’s trading platform.
What better way to get first-hand feel of the trading platform than by using binary options demo accounts. You have to exercise caution though, demo accounts on some brokers may show marked differences from the real accounts.
In any case, it is way better than relying on your gut, having to rely on information on external sources that are neither recent nor accurate, or having to deposit real capital before you can do a test drive.
- Develop, Tweak, and Test Strategies
This is an extension of the first entry. Although, the first entry appears to target beginners or newbies only, this entry resonates with every trader regardless of level of experience.
Strategies are the mainstay of binary options profitability. Furthermore, it takes time, a bunch of real-time trials, and effort to perfect strategies or try them out to see if they are profitable or a fit for you.
This is where a demo account comes in. Rather, than do experiments with your precious capital, a demo account provides the perfect simulation environment to do whatever you will with your strategies with no fear of losing money.
Limitations of Binary Options Demo Accounts
Lets see what you need to get a free binary options account with play money.
- Deposit Requirement:
This is a necessity to open a demo account with some binary options brokers, although the number is dwindling by the day. This limitation coerces you to deposit at least the ‘minimum deposit’ amount, before you will get the privilege to operate a demo account.
To be fair, this is more of a way to secure your patronage than a way to choke you. You do not have to use the money you have deposited for real trading before you can use a demo account. You need only make a deposit.
However, it is understandable to prefer a demo account that does not have a deposit requirement. Thankfully, far more binary options brokers offer such demo accounts than those that solicit for deposit first.
- Funding Amount:
This refers to the amount of virtual credits you are given. These credits are denominated in dollars for the sake of realism.
For some binary broker’s demo accounts, the funding amount is fixed at a few thousand dollars, for others you are free to set the amount yourself.
Regardless, virtually all brokers offering demo accounts permit you to replenish the credits at no extra cost after you may have exhausted them.
For some brokers, a demo account is like a trial service. You get to use it for a few days and then have to switch to a real account for more access. This, like the deposit requirement, is also gradually fading out.
Most traders prefer binary options demo accounts with no duration limit for good reason. A core reason being that it takes more than a few days to learn the ropes of binary options trading. In addition, no one really outgrows the use of a demo account since it is useful for developing, tweaking, and testing strategies.
Fortunately, the number of binary brokers offering demo accounts without duration limits is substantial and increasing by the day.
- Trading Platform/Broker
This is not much of a limitation peculiar to demo accounts as it is the nature of binary options and affects real accounts as well.
As earlier mentioned, many trading platforms are unique to specific brokers. In other words, many brokers support custom trading platforms that you will not find elsewhere.
Therefore, if you are competent and used to the platform of Broker A, you would have to go through another process of getting acquainted with the workings of Broker B, when you want to make a switch or begin to use Broker B as an alternate broker.
This may require you to open another demo account with the Broker B (alternate broker). This is especially frustrating for those who may already have experience trading forex. In contrast to binary options, the demo accounts of the large percentage of forex brokers use the same MetaTrader platform.
It is a widely acknowledged benefit that demo accounts present a perfect avenue to try new assets, features, different trading styles, and strategies.
However, an important component of trading—the psychology of trading—is very different when you trade with a demo account compared to when you trade with a real account.
The undisputable fact is that your state of mind in both scenarios is markedly different. The adrenaline rush is high and your approach to risk is more stringent when you use real account as opposed to an almost absent adrenaline rush and loose approach to risk when demo trading.
The argument is that the use of binary options demo accounts affect your trading style by making you willing to take more risks than usual. Nonetheless, as long as you take your demo account trading as real as you do when trading with a live account, you would be able to reduce this detrimental effect to the barest minimum.