5 min read
Does it ever seem that when you trade on your Practice account, everything goes right? The outcome of the deals is satisfactory and your balance grows steadily. It seems much easier to have a positive outcome and the losses are insignificant. Why is that so when trading on the practice account without real funds invested? Here are the 3 biggest differences of the Practice account and the Real balance.
Practice balance is free
Probably the most obvious explanation, but it is true. When the deals a trader makes are done with free funds, it is extremely easy to overlook the losses and only pay attention to the amount of gains. The fact that the Practice account can be replenished as many times as needed means that all the mistakes that a trader makes do not matter, since they operate with an unlimited amount of virtual cash.
It takes mental effort to be just as careful with the Practice funds as you are with real money. The only difference between the accounts is that the money on the Practice one is fake: it means that it cannot be withdrawn. Since the charts are identical (all the quotes are the same), the odds of losing or winning are the same for both types of accounts; however losses on the real account include your actual invested capital and your real money.
Practice balance is operated with large amounts
When you trade on the Practice balance, the investments you make are most likely hundreds or thousands of dollars. When the investment amounts are this big, in case the deal closes in-the-money, the return will most likely also be quite considerable. Trading with large amounts brings satisfaction and a sense of accomplishment, even if the funds are not real. That is just how our brain works: we are able to receive just as much pleasure from a simulation as from reality.
A possible solution to this may be trying to invest small amounts and write down the outcomes of the deals, when practicing. This will give you a perspective of how much funds you spend and what the actual returns are.
Trading with real funds awakens strong emotions
It is easy to notice that when you trade with the Practice balance, you don’t feel any fear. There is nothing scary about losing money that can be replenished straight away. However, when it comes to your own hard-earned funds, each deal is associated with uncertainty, fear of losing and greed, desire to earn more. Real balance does not give a second chance. In case of an unprofitable deal, the funds are lost. This causes irrational behavior that affects the way a trader thinks and, consequently, the outcomes of the deals.
Preventing strong emotions is quite hard but not impossible. A good way to process them and deal with irrational behavior is to have every step written down. It may include the deal specifications (investment amount, open and close prices, time, asset, etc.), the risk management approach, everything that you consider valid and that should be considered before placing a deal. This may help take some of the pressure off and concentrate better.
The biggest difference between trading on the Practice and Real accounts is the trader’s approach, which is usually unconscious. One way to manage the outcomes on the Real and Practice accounts is to trade rationally and analyze the results. Do you notice any distinction in your trading on the different accounts? How do you manage your emotions? Let us know in the comments below.