Demo Trading, also known as simulated Commodities trading, paper trading, playing with Monopoly money; whatever you'd like to call it, an online trading platform demo can be your best friend or your your worst enemy for beginner to intermediate trader. Get your fills by knowing the ins and outs of your Trading Demo.
Demo Trading. Also known as simulated trading, paper trading, playing with Monopoly money; whatever you'd like to call it, a demo can be your best friend or your worst enemy. Every Futures broker dreads having this conversation with their clients, as it is necessary with every new trader; however, much to a broker’s chagrin, every new trader will say that they already understand when in fact they rarely do. Let me assure you, if you're a new or even intermediate trader, you probably don't. You may understand one popular issue of the conversation but odds are if you have been paper trading for five years waiting to be "successful" or to "understand the futures markets" in the simulated world before moving on, you have less of a chance of being successful in the live futures markets because you're setting yourself up for failure (if you ever do, in fact, trade in the live markets). You should seriously consider speaking with a licensed commodities and futures broker before diving in.
For the uninitiated, demo trading is the practice of trying out an online trading
platform on a simulated basis—in a free demo trading account, you’re granted simulated funds, you’re placing
simulated orders in the markets and you’re shown simulated profits and losses on what your trades might have done
for you if you were futures trading on a live platform with live funds. First and foremost, it’s a wonderful
technological tool for testing out a platform to see if it will suit your trading methodology. It can also be used
to try different trading strategies, but problems arise when one equates simulated trading too much with live
futures trading.
No matter how many houses you can afford to build on Pennsylvania Avenue with your simulated money and no matter how many railroads you've had to mortgage to pay the rent, the hypothetical results you've attained in your simulated trading do NOT, and never will, indicate future results in the live markets or any markets for that matter (thanks for reading through the board game references, I'll keep it to a minimum from now on). Between misplaced expectations, developing an inability to adapt and false expectations of profits that you've earned paper trading, you have set yourself up for an even more uphill-battle than you were originally up against.
To clarify before moving on any further in this post, I want to be very clear about a few things:
The first issue many traders already know about is the false sense of security with your fills. The idea of a limit order is first in, first out. Take a moment. First in, first out. It's the golden rule of live trading, and it's a lesson you're never going to learn in simulated trading. Do not be "that trader" that is confused as to why it's taking so long to get filled once you start your live trading. It is not your platform, it is not your broker, it is not the data feed; it is the lack of fantasy fills you have been provided on a demo. And no, apologies to the automated trading strategists, but you're included in the conversation as well: you could be testing your strategies on market replays of historical data on our platforms and getting unrealistic fills.
In the simulated world, your limit orders are likely to get filled as soon as the market touches your price. For example: if you're trying to go long a contract on a buy limit order and your entry price becomes the bid, a simulated seller may instantaneously take the other side of your contract; however in a live market, you're going to have to get in line behind all the rest of the orders placed before yours waiting to be filled. In less liquid markets you may not notice as much of a difference as there may not be too many people in front of you; however, in more liquid markets such as the popular e-mini indices or the interest rates, you will notice quite a difference when the market keeps bumping against your price without filling your order. Only when the market passes THROUGH your price are you guaranteed a fill on a limit order in the live markets. This makes your hypothetical demo results much more difficult to interpret and sometimes impossible to trust.
Now on to the subtler and often misunderstood aspect of demo trading.
This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!
BROKER NOTES:
It should be noted that this list was compiled based on the AVERAGE rankings by the senior brokers here in the office. Therefore, it should be noted that there are differences in opinion, ESPECIALLY on the position of the "Factory Orders" and "Philly Fed Survey", which some believed should be switched around. Feel free to comment, phone in or email us your questions or concerns. We're happy to get into a discussion about any of these events and how they affect the markets.
Source for definitions: Econoday
Disclaimers:
* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.
** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.
*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!
