A demo account is basically a trading account, either through a broker or a simulator, that does not use real money. Demo accounts are actually very powerful tools when it comes to short term trading because of the fact that they let you try out new ideas and techniques without any risk, all while learning how to use a potentially new software platform. They are primarily used for practice, and thanks to this zero risk element, they are a great place to hold contests.

The Benefits

The main appeal of demo trading account contests is that you can take risks that you would never take in your own trading. Let’s say that you are in a $10,000 stock trading contest, and you think that buying 10 shares of Facebook is a great move, but in real life you would never try something of this magnitude. Thanks to your demo account, you can. If you’re wrong, then you just won’t win the contest. If you’re right, there’s not just the benefit of boosting your confidence, but the chance that you can use your skills to win a prize in your contest.

Another big plus to demo account contests is the fact that you might learn some new skills. Let’s say that you’ve always wanted to learn how to day trade in the Forex market, but you’ve never really done much of it besides observe, this is a perfect chance to get started. There is some impetus to do well because of the competitive setting, but if you don’t win, you are only losing out on your entry fee—if there is one. There is more to gain here then lose, especially if you think of this as a learning tool.

Demo account contests also allow you to get practice in a less stressful environment, but with all of the same urgency that real money trading carries with it. Think about it like this: when you sign up for a broker account, whether it be stocks, binary options, or Forex, you want to start trading. You know that you need to hone your skills, but having an account means you should use it, right? If you sign up for a binary options account, you might not even know that you have access to a demo account and just start trading. Yes, you will learn how to be a better trader this way, but there will often be doubt as you start executing trades. In a demo contest, you can make trades without that and actually have a relevant learning experience without that stress.

The Negatives

In demo trading contests, there are always the traders that want to shoot for the moon early. They take big risks that they would never even remotely consider if real money was on the line, all for the hopes of taking a big lead early on in the contest. This is especially true of Forex contests when leverage is available and earnings can be multiplied. There are a few things that can be said about this kind of technique, but the bottom line is that it works far less often than it fails. There is a potential upside to pulling a stunt like this, but in the long run, it’s a losing move. Yes, it’s extremely frustrating to see someone do something so stupid and so reckless and then be rewarded for it. But if this happens to you, just remember that most of the time that person is losing the contest and you are ahead of them. Keep with it, keep a sound strategy going for you at all times, and this kind of occurrence will impact you far less frequently than you might think.