Why is demo trading more profitable than live trading?

Thank you

Thanks. I appreciate it!

I read on a forum: "The more $$ you make with brokers, the more execution lag & delay you will encounter."

Is this true?

when you broker is your counterpart of the trades, yes. if not, no, only when you try to "cheat" like with some arbitrage plans to use slow datafeeds of some metatrader brokers, so they protect against this by execution lag or delay to not going bankrupt, by real trading you really need some broker who is opposite trade as marketmaker in all your trades.

No offence, I agree with your concept but entropy is not the right word to define new data!

Cheers.

Though demo trading accounts offer opportunities to get acquaintances with the forex market with the use of artificial money as real accounts, there are some differences between the live accounts and demo trading accounts. A trader can face the difficulties regarding the trade executions and he can also face hardship while engaging in trades with big amount. There is no such difficulty in case of demo trading accounts no matter which amount you are trying to trade.

and this are only the smallest problems!

Thank you for your reply. I appreciate it. Could you shed some light to what other problems there exist?

I started a similar thread to this one a couple of years ago or so, and ClivePeckham came up with this valuable response, which I'm sure he won't mind me pasting here -

"
Hi Cat

Great question and the very core difference I'm sure between winners and losers is to take thier trading skills developed on a demo to a real account. I think the reason guys struggle with the transition is the same reason so many of us fail to succeed at trading, full stop.

Solve this puzzle for yourself and you will become a successful trader.

I recently read Mark Douglas's "Trading in the Zone" book and I gotta say its an awesome book again like you hitting on the difference between winners and losers, as Mark Douglas says when ever he's asked whats the difference between good traders and bad traders. he always answers the same, "its the way they think"...Winners think differently than the majority of losers.

I'm sure if you asked him your question he would answer in a similar vain, that once we switch from demo to live we suddenly start to "think differently" than we did on demo. All of a sudden we start to really care about the outcome of our trades as its real money at risk, whereas before it was more like a computer game with no real consequence to your actions.

But not only that they have to think differently to how the human race has thought for the last 2 million years..That have to think differently from how their brains are hardwired to think. Let me explain as best as I can...

I compare it to the playing a war game on our computers, we all rush around shooting and blasting anything that moves with a totally carefree attitude with no fear of dying. However imagine actually being in that warzone in real life??? What would you act like then?? Would you run around blasting everything in site or might you put the safety of your own life first and ensure you are safely shielded behind some solid wall or such like??? More concerned with preserving your life than taking someone else's???

Moving from trading demo to real money is no different apart from of course your lifes not on the line... Oh no its far more valuable than your life, its your money!!!!!

So what changes?? Fear , real Fear, Fear that is a healthy emotion to have as its whats kept us alive up to now, the healthy fear of dying, stops us running into a busy road without looking. Its fear that stops you jumping off of a cliff to see what it feels like. Its fear thats kept the human species from extinction...

The emotion of Fear is absolutely essential for our survival so its therefore a very difficult emotion to ignore. In fact I'd say its actually impossible to ignore fear. Its the way our brains are wired to react to fear as that's how we have evolved to have a healthy respect for any fears that we feel in our everyday lives.. So if we can't ignore fear how can we ever become successful traders??

One other thing about fear is that it focuses our minds on that fear and nothing else and yet again theres a reason for that. Imagine you're one of your ancestors from many moons ago and you're strolling down a wooded path. When all of a sudden a lion leaps out in front of you licking his lips and looking at you as if you're his lunch.

What do you think your whole mind would be focusing on?? That email you must send when you get back to the office?? Did i leave the gas on when I left home this morning?? Or I wonder if I should wear the green tie or the blue tie with this suit??? I don't think so do you??? No!! Your whole being would be focused on that one threat sitting in front of you licking his lips and snarling with saliva dripping from his mouth.... And absolutely nothing else.

Now tradings no different when we trade with fear in our hearts. But of course its not the fear of a hungry lion when we're trading oh no, its much more fearsome than that. Its the fear of losing our money.. In fact theres four fears at work in trading.

 

1. The fear of missing out.
2. The fear of losing your money
3. The fear of being wrong
4. And last but not least, the fear of leaving something on the table.

Now when we move from the safety of demo trading to the reality of live trading with our actual money is at risk, it all changes..All of a sudden these fears become very real too and hence our performance suffers.

So we have to learn to trade without fear. Its that simple as the demo proves time and time again. Trading on demo without fear is easy and very profitable. But introduce real money and the associated fears and all of a sudden its practically impossible..

So how do we remove fear from our trading after all as I've just explained, our brains are hard wired to have a healthy respect for fear..

there is only one way to remove fear from your trading, you must remove the perceived threat.

its that simple remove the threat and you will remove the fear from your trading...so how to remove our those threats???

You cannot fear the market...You have to totally accept the market for what it is, a completely neutral collection of price action signals. The market is neutral. Unlike the lion, Its not out to get you..Its just the market, its just doing what the market does best. When theres more sellers it will go down , when theres more buyers it will go up. Pure and simple, no hidden agenda, just moves where its suppose to move. It is also a totally random market place which can go up or down at a moments notice, its totally random...

The sooner you totally accept this concept and totally accept it can go any way it wants whenever it wants then the sooner you will be able to trade without fear.

The sooner you will be able to read the neutral signals for what they are.

The sooner you will be able to interpret these neutral signals and take the appropriate action when you need to, cut a loser short, let a winner run. You will be making trading decisions based on the neutral signals of the market and not on your perceived threats, even if that does mean taking a loser.

Your trading will be based on facts not emotions..

Once you totally accept the market for what it is then why should you fear it?? Once you accept you are going to have losers, why should you fear them?? Once you accept you are going to be wrong, why would you fear it?? Once you accept you are going to miss out sometimes, why fear it?? Once you accept you are going to leave something on the table, why fear it??

So coming back to your question about making a smooth transition from successfully trading a demo account to trading real money..

Once you take total responsibility for your trading and have fully accepted the outcome of your trades no matter what they are then you will be trading without fear.

Now if you have an edge, that you've previously proved on demo, then you will be profitable.

Want to know more then read "Trading in the Zone" by Mark Douglas as all I've done here is given you my take on his outstanding book...
Feel the Fear and do it anyway!!! "

Thank you. I appreciate it a lot. Emotion is indeed important in live trading, I agree.

I'm sure no one will be surprised to get a contradictory opinion about this on FF but I disagree that 'psychology' or 'being in the zone' is important in live trading. If your psychology is causing you to do things you don't want to do it's probably because you don't trust your system and the reason you don't trust your system is probably, in order of likelihood
a) your system sucks, at least in one important respect
b) you're inexperienced, and have unrealistic expectations

I read Mark Douglas book and I got nothing from it. 'Accept the market for what it is' ; what does that even mean?

You know what isn't susceptible to psychological errors? Robots. So if you find yourself making undisciplined errors or failing to stick to your plan, turn your strategy into a robot and simply let it trade for you. There you go, 'psychology' has been removed from the equation.

Rather than spending time trying to 'tune' your psychology spend the time working on your system, understanding its probabilities and econometrics, and then sleep easy at night knowing you put in the work, instead of reading a book, and trying to 'feel good' about trading a system that is bound to fail in the long run.

Great thread. Psychology is just 30% but system is 70%.

System includes Market Makers who can front run positions, create false moves, and who have to manage their inventory, Bankers with Iceberg orders who are conning you with false moves. Somehow you will miss that in your demo testing but in live these factors magnify.

Everywhere they reverse and some idiots give psychology 95% weight. Not true. Your system needs a sharp edge else despite the best psychology your account will bleed to death by thousand cuts or just a few. Test a load of systems and soon you will discover 95% are truly crap. Somehow, I think this psychology factor weightage was promoted by the system sellers or by losers who were not methodical.

I have a system with edge now and trading with it is a game changer. Once you find that system or create one, Focus on A Set Up as that will keep your trading business alive. Have a B Set Up to keep the cash flow (scalping). Do not sacrifice all your time in B Set Ups (plenty) and miss A Set Up. If you do your account will make money but growth will be not spectacular. Back test your Set Ups and Journal daily A and B you took.

Importantly, if you developed your own system ( you can tweak it and stabilize it better) which you are comfortable with test in Demo It could read such as : you took 8 B Trades waiting for A Set up 8/8 winners. Took an A trade moved Stop to breakeven ahead of Red news and next in a few minutes I had 50 pips in y account.

Once you have logged for a couple of weeks go live with small lot size. At this time your psychology shows up, slippage shows up at its best. You have to rework your system and balance psychology and system.

Make sure your commissions and spreads are low for B Set Up - scalping else you will have an uphill task owing to requotes and you may miss optimal entries.

Worse you may experience in live there is no requote but your broker fills market order at the crappiest price that makes winning scalps impossible. Try limit orders/ stop oredrs for better execution

For slippage you will have to micromanage your entries to get better fills in Live. If you want buy look for buying a little lower reverse for sell

its true, but maybe 2 point missing:
c) your risk you invest until your StopLoss or the risk level until you stop using your system is to high and wrong calculated to your own personal risk level
d) you get greedy or want revanche for the loss

near all psychologic problems in trading coming from this 4 point (the 2 your listed and the 2 i listed and of course some are connected to other)

when you are unexperienced, dont want learn basics, dont have good system you trust, dont know your personal risk level (whats really easy to find) you need such books like "trading in the zone". for experienced traders this book will bring total zero, its written for the total beginners who dont can think in math and have problems because of the mentioned points. so for many the book can help, of course this people would help more learning the basics and so know all the rest, because its included (how to find private risk factor, what you can do in trading and cant do in trading, how to find and improve trading systems and trust it, what feeling are bad in trading and how to avoid, whats mistakes to avoid because 100% wrong, math facts..... so many points)

so when you say, when you have a system you trust, you dont have any problems with trading in the zone is 100% correct. with a system you have your trading plan, your personla risk level and your border when you stop using the system and rework on it (because looks like this system dont work as aspected or dont workany more because facts changed).

In my opinion the main difference is in slippage. Requotes and swaps is something that you can bypass. I don't have any requotes and do not keep overnights so swaps doesn't apply to my trading.
When you trade on demo you may open 5 lots without slippage but when you try to open it on LIVE you will suffer on average 1 pip slippage on each position.
Lets do an example:
You have 500000 USD.
You don't use leverage and trade 5 lots.
You did 1000 trades/quarter on demo and "earn" 20000 USD.
So on demo you "earned" 4% of initial capital /quarter. So quite nice hypothetical income.

Now lets go LIVE:
same rules but lets consider slippage.
on each trade you suffer 1 pip slippage which cost you 10$ each.
1000 trades * -10$ = -10000$
So your demo income 20000 USD - 10000 USD slippage = 10000 USD.
This equals to 2% of initial capital.
It is just an example, but lets say it was a "GOOD" period for your strategy. What if average slippage increase, what if strategy has "bad time"?

Another thing:
I have worked with some traders and on demo they did something like "on live I woldn't open this position, it doesn't count" - on losses, but on wins "I did a good job" - even if position was completely out of his strategy.

That is my point of view

Use this indicator to check the difference between Live and Demo price feeds, freezes, etc.

- Spread average : average spread in pips of the symbol during the hour.
- Time average : average time in seconds between two ticks during the hour.
- Freeze : total number of seconds during the hour when the time between two ticks is more than 4 seconds.
- Ticks : total number of ticks during the hour.
source: https://forex-station.com/viewtopic....94#p1295349794

Check difference between live and demo:

timeout indicator:

The indicator displays the time between sending a quote by the broker and receiving it by you: the current, maximal and minimal lag.
ATTENTION! For the indicator to work properly, your system clock must be synchronized with the same server as the clock of your broker. Otherwise the usage of the indicator is meaningless.
The indicator will show the time of quote passing between the server of your broker and your terminal. The problems with the connection will be noticed at once (if there are), and also the obligingness of the broker and many other stuff.
If the indicator's value is 1-2 seconds, this can be the result of the connection quality and server's workload. But if the indicator shows >5 seconds - you need to pay attention to it (you can ask your broker's technical support, whether it is normal or not). That's not certainly the point, there can be a lot of causes. But at least you'll know that you receive the price by "n" seconds later than the others.
The indicator can not be a subject or a reason to assert a claim to a broker, it just acts as the information source!
External variables:
GMT_shift - Time zone (GMT_shift = 3 for Moscow)
DrawBars - The number of indicator's bars to be drawn (1 tick - 1 bar)
and 4 colors just to be safe

source: https://forex-station.com/viewtopic....57#p1295349657

And:
source: https://forex-station.com/viewtopic....18108&start=50

near all. demo account is commercial for a broker. he want you win there because only then you open a live account, so you get any advantage whats possible.
you can win with strategies in demo that would not even win any cent in a real account and you invest then many many time in developing this strategy in demo account and lose all this time. and time is most important value in the world, nothing other has more worth. i have seen people losing years with this bullshit by using a demo account.

I read this article regarding live vs demo testing. Do you see parallel's with your own experience?

Article on backtesting Live vs Demo:
First and foremost, how's your modeling quality on strategy test. If you are not testing at 99.9% quality then disregard all results as invalid. They simly can not be relied upon. There is a lot of work (kinda) to achieve 99.9% but it can be done and best of all it can be done for free.
Difference between live, demo and strategy tester are critical to understand when evaluating a bot. On a demo account and in tester you have instant exuction of your trade. And a little known fact, some brokers have different data feeds and pricing for demo accounts luring you in with tighter spreads than they're live accounts. Which can also vary depending if your on they're "A" or "B" books. So your results will be skewed in your favour and not repeatable in a live environment.
So when trading live, variables that will affect your results include latency. The time between when you hit your buy button and when its recieved at you brokers terminal. Then exuction speed. The time it takes for your broker to find a "counter trade" . Actually this is a bit of marketing bull. Your broker will always be your counter party as your trading OTC derivatives offered by them and them alone. No-one else is involved in your specutive trade. How they manage your risk is generally written in fine print serval pages into they PDS. It is not up to your broker to find the best fill price for your order
So for us poor layman there can be delays of significant time between when we hit the trade (manually or through a bot) and the trade being exucted. This is where the phrase slippage comes from. Your broker is always managing their risk. Being able to hedge your trade is more important to them than filling your order. Thats way generally you'll get negative slippage. Not too much of an issue if your chasing triple digits pips, but if only chasing single digits it can break you. Then as you've identified there's commissions costs.
At the end of the day it's a process and that process is to evaluate potential. If using strategy test the bot shows potential you move to a demo account. If similar (but generally less) results are achieved you move to a small live account. If your broker sends you an email notifing you they are are changing servers you know they've change you on their books and your bot is working well. Start increasing your capital. 6 months down the track and things are still going strong add more capital. Its a process and a marathon.

So, we can assume that price on a demo account:
- is less random
- is easier to read
- has less fake breakouts

Conclusion:
Should we then base our live entries on demo charts? Why or why not?