A: I think the idea of simulated trading in itself is a good one to learn the mechanics and develop a rule set BUT when this is translated to actual market conditions it may lead you to a false sense of security.
Trading is highly psychological and nothing comes close to dealing with a situation when you have real money at risk. As a supporting example, think about a casino. Casinos know that there is not the same emotional attachment to a chip as there is to a real, physical, in-your-hand dollar bill. This small difference changes the way you play the game. We intellectually "know" that the chip has the same value as a bill, but emotionally we treat the chip with less respect than the dollar bill - we are willing to take on a different (higher) level of risk when chips are used. That truth transfers to demo trading as well.
Demo spread betting does give you an idea of what to expect but you still need to follow the rules, re-examine the rules, and adjust as necessary. When moving to hard cash there is a shift in risk tolerance that may no longer align with the intended system which will degrade your system!
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But you should definitely still use a simulator platform for at least a few weeks, especially if you don't know much at all about spread betting. Demo accounts definitely have their place when it comes to learning how a trading platform works and will definitely help you understand the dealing process and margin requirements. Also, a long period of paper trading will give you confidence in the trading platform without the pressure of money being involved. You may find that the strategy you start with is not for you and so it gives you a risk free go at an alternative until you find the right one. It also gets boring after a while which is where it tests your ability to maintain discipline. You find out if you have the patience to sit out the long boring periods until a trade comes together. If 90% of those who try day trading loose I would bet that 90% also would not have the patience to paper trade for 6 months...which after all is a very small period in a the total of a trader's life...a bit like an apprenticeship.
There are a number of providers who offer virtual spread betting platforms/trials. Two which I particularly like are:
Capital Spreads: a good firm with tight spreads. Very simple interface, good for testing and becoming familiar with the levers and throttles. I don't rely too much on their charting tools (for my purposes) but you don't have to use them.
Spread Co: this is a also a good provider with tight spreads and offers a USD25,000 demo account (or currency equivalent) As with many recently designed trading platforms, the software is maybe a bit more user friendly than some of its older competitors.
Just remember that demo trading lacks the pressure that comes with real trades. Fear and greed are powerful animals. An alternative would be to do it for real but with tiniest allowable stakes.
A: This is really a personal decision more than anything else. I started live, and regretted it. However, I started the wrong way. I began with too small a fund relative to what I was trying to achieve. I did not understand any of the stuff in my list, all I could see was the house on the beach. I didn't have enough in my account to enable me to set sensible stops, I couldn't face the drawdowns whilst waiting to see if my trade was going to turn into a winner. The value in demo trading is two-fold -:
Firstly, you get to understand all the terminology (Sell Stops - Buy Limits...etc) and, secondly, you start to develop a feel for when your trading system works. Every method, or system, has weaknesses. You need to find filter those out as soon as you can, and work out how good money management can keep you in the game longer. When you decide to go live strictly limit your leverage and keeps lots of cash in your account. As you gain experience, and your account value becomes larger, good money management will enable you to increase your stake size and grow it faster.
The problem with demo accounts is psychology is the main part of winning in stock market trading. Betting for real using small trade sizes (I used Capital Spreads but I imagine other providers have similar schemes) helps but even then the mental response to losing £10 is different to losing £1000!
A: Again, this is about managing risk and your perception of it. If you are losing sleep trading with £5,000 it means that your emotions are getting the better of you and you cannot really afford to lose this amount of monies. The only way to cure that is to trade with a smaller amount, for example £500 or even less. If you feel more relaxed trading with £500 then this is your comfort level and you should trade with this amount until you are happier to trade with more.
If you lose £10 here and £15 there with sometimes getting a profitable trade you won't get nervous in a hurry. And the more you trade the less nervous you will become so after a few months of trading small you will start becoming more comfortable placing trades (but beware don't become overconfident!) and you can start to increase your size.
Also, when starting out don't be upset if you lose money as this is probably one of the best things that can happen early on! I think losses/failures are a great thing, they make us better/stronger than before. Losing teaches you so much more than you can learn from winning albeit only if you learn from your mistakes. I recall one great trader repeatedly saying that a trading loss was never wasted if he was able to extract some useful information from it. If you start winning early it is very easy to become overconfident and increasing your bet size and this is where the market will grind you. This is even another reason to start very small because if you lose say £500 over the next few months again I would assume you can handle this without much worry. Think of the £500 as a business expense. Once, I heard of a trader talking about placing trades on a BullBearings (simulator platform) outside of market hours at market prices. From what I've seen in reality this doesn't happen. You need a real platform to learn on. That's another reason you should start small.
You should trade with a calm mind, looking at it as a period of education and personal growth. After some time you will begin to enjoy it, learn from it, and you will then become more relaxed and less stressed with it and not put pressure on making profit - ironically, it is at this stage that traders usually start to trade well and profitably.
Hope that answers some of your questions but feel free to send me queries, comments or concerns at traderATfinancial-spread-betting.com or by filling in the form below :-)
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