A Question For the Experts (from a newbie)

[chaps_x]

I'm new to this and just starting to build a system, and I would like the opinion of the advanced traders....

If I have a trading system that works with the demo account from a broker (let's say CMS, or REFCO, for example), will I be just as successful when switching over to a real account? I've read a few comments that made me wonder about the difference between demos and actual accounts. Your expert knowledge is greatly appreciated!

[eternalfuture]

Chaps_x,

The core difference between trading a demo account and real account is the psychological factor.

In demo account, you've got nothing to lose. Are you risking something there? Will you feel very scared when the market is approaching your stop loss point? I believe not.

But with real account, you've got something to put into risk. You can lose your money. It is a painful experience to wait for the market to move in accord to your expectations.

You tested your system using demo account or maybe paper trading. I've been there before, and I don't feel significant pain when my stop was hit. But when I put them into real account, I felt so awful when my stops were hit.

If you play flight simulators on computers or video games machines, you won't feel scared when your plane is about to crash. But what if you're on real plane? How would you feel?

In short, in demos, emotion/psychology is not included.

Cheers!

[Steve UK]

Hi Chaps

Firstly let me say I’m no expert but have been trading demo accounts for about 3 years and real accounts for the last two of them

I agree 100% with what “eternalfuture” says about the whole psychology of the difference between demo and real accounts and yes I have been there myself many many times!!

I guess however you was asking more as to if the demo and live platforms act in the same way – well yes and no….

1. Orders on demo accounts are dealt with by a robot while real account orders are handled by a dealer at the other end – that’s your first difference

2. The price feeds on demo vs. live are not always alike either a different feed or a delayed feed

3. you never get a re-quote from a robot but you could well do by a real dealer

4. you never get slippage on a stop by a robot but you could by a real dealer

5. limits are always done if your order hits your level on a demo account but what about a real dealer?

Without knowing what type of trades you do on your “system” and the timing of these trades if difficult for anyone to tell you what problems you may face on a real account over that of a demo.

If your system trades 100 times a week and makes let say 300 pips overall then you may well find that a real account could well lose as some if not all of your pips could be eroded by some of the points I made above. If however your system trades say 10 times a week and your net profit is 1000 pips then to lose a pip or two here and there wont matter too much – oh and by the way if you have got a system as good as that then please let us all know!

Steve

[PanMarcepan]

I¡¦ve had account with 3 different forex brokerages. I was using demos before opening real accounts (in all cases).
I wasn¡¦t the one who fell out of pumpkin wagon and thought, that trading currencies is easy but 2 years ago I managed to wiped out my first forex account ($5000) within 4 months of trading.
Blame myself?, Yes.
For what? Poor knowledge of the Market Maker systems.
Aggressive trading, Desperation, ¡Kmaybe, but this is different story.
(Until today I haven¡¦t found a good broker and just accepted fact, that all of them are the same)
I agree, that there is a big emotional factor involved (trading a real account)
We are all influenced by price changing and very often change our mind during the trade.
---In demo account you don¡¦t really experience this. This has been explained in the previous posts.
The next difference between demo and the real account is slippage problem.
As Steve mentioned in the demo account you don¡¦t get re-quoted as much as in real account. I¡¦ve also lost many trades by placing ¡§Limits and Stops¡¨ in the past (trading a real accounts) . Demos work just perfect; all Limits and Stops are executed as you plan.
I¡¦m not saying that your broker is your enemy but if you think all money they make are from spread, they wouldn¡¦t survive long ƒº. All market makers run their own ¡§internal¡¨ markets, creating tick-1 min spikes, just to hit ¡§Stops¡¨ or ¡§Limits¡¨ for their advantage.
Most of the time Trading System executes and creates spikes depending on the clients orders. It¡¦s quite simple program to write.
If you trade bigger amount of lots, they might do this by hand as reward is bigger.
---Demo Accounts don¡¦t use this program and executions are fair, according to the BID-ASK price
Real Accounts don¡¦t use the same Servers as Demo Accounts.
I learn don¡¦t place ¡§Stops¡¨ nor ¡§Limits¡¨ when I trade, just watch the market. Also 1 min- charts are very misleading when trading a real accounts.

[eternalfuture]

Ah, yes, technicalities about trading... I missed that point.

Pan, although it seems to be painful when our stops are hit, the importance of stops can never be underestimated.

It's a tool to impose discipline to traders.
It's a tool to limit the losses.

Maybe, from your perspective, it's a tool for brokerage firms to grab your equity.

But, nevertheless, it's more a savior than a killer.
If your stops hit, perhaps you didn't put them well enough (if you don't feel it that way, I do).

However, these are just my thoughts.

Every trader has his/her own trading principles. Nobody can't impose somebody to place stops anyway, vice versa.

[PanMarcepan]

eternalfuture


That’s all agree.

My point was to show difference between a real account and demo account. That has nothing to do with “imposing discipline to traders”. Again I have learned my lesson and I remember well. This was a long time ago.
Thus, I tried to share some experience and advice people, that “demo” is not the same as “live trading”. The approach is different and different techniques needs to be apply.
For Example:
--If, I’d trade demo:
I Short EU/USD, time: 4:10 (NY time) at 1.1210, I’d place a limit at 1.1135 and stop loss: 12.30
If waves are changing, I take a correction or take profit….. or loss depending how the market moves.
At least I know my orders get executed(Stop, Limit) when the price riches one of above mentioned.

---If I’d trade a real account
I Short EU/US, time: 4:10 (NY time) at 1.1210, target
THE difference is : I don’t place stop order, … if I have to I’d rather place at 1.1260 (but in my mind the real stop is at 12.30 (market makers tent to spike up to 4-40 pips) and set my target at 1.1135 , watching market.
Most of the time I don’t place Stops and Limits at all. I just watch the market and when the price riches my target, I execute…If not , I close the trade and wait for another opportunity.

Again; I experienced many times my limit orders were not executed at all, even quoted price was as much as 20-30 pips below or above my limit !!!. Depending on the size you trade. Smaller size you trade- better execution you get. The same applies to “Stops” .

That’ the major difference between a demo account and real account, that I have experienced.

[eternalfuture]

Well, Pan...

I don't trade on-line, so I never experienced being disadvantaged by means of spreads. I'd take that as an input.

No wonder when trading demos I could easily get my limit done.

[chaps_x]

Thanks for the excellent info...based on what you've said, I know begin to wonder if anyone has had experience with certain brokers that seem to have less slippage than others...a broker that is reputable and has many traders on it would have a more difficult time "influencing" the market to their advantage? Or are they that powerful?