demoWhen the retail-based binary options market started in 2008, there were no brokers offering demo accounts. This made it very difficult for traders who wanted to trade this market to practice anything they had learned or wanted to implement on a live account. We have since moved from there to a situation where there are now a few brokers offering binary options demo accounts.

It is important to know how demo accounts operate and what a trader can do with them.

Why Do Traders Need a Binary Trading Demo Account?

Here are some reasons why a trader just cannot do without a demo account at this time.

Knowing the Market

The binary options market is unique and unlike other markets. Usually a trader will have several assets cut across different asset classes, with various types of trades and above all, there are set expiry times that put a time frame to any decisions that a trader makes. The complexities of the market demand that a trader engaging in binary options for the first time must be able to understand the structure of the market. A binary options demo account will help the trader in this regard.

Programming and Developing Strategies

When a strategy or trading bot is developed, it is not sent to work straight into a live account. It has to be optimized and any bugs contained cleaned up. It must of course be tested. A binary trading demo account provides the avenue for such tests and optimizations.

Practicing Risk Management

Risk management is not just a concept. It is a way of life that a trader must adopt. The only way to understand risk management and how to apply it is to use virtual money in a demo account and use it to good effect.

These are just a few reasons why a “practice account” is important. There are other reasons as well, such as the actual business of setting up and executing trades.

Types of Demo Accounts

Before deciding on which demo account should be used, it is important to determine what style of binary options would be traded. You cannot be trading on NADEX and use a demo account of a European-style broker. It also does not work the other way round. If you will be using a particular type of broker, please stick to that broker type.

For instance, NADEX is a US-style brokerage which offers a binary options demo account that mirrors the live trade types found on that platform. If you will be trading on a SpotOption white-label brokerage, you can choose any of the brokers on that platform offering a demo account. That is the way it goes.

You should also understand that there are limited and unlimited practice accounts. “Unlimited” accounts can be opened and used forever without an obligation from the trader to open a live account. They are however rare and only a handful of brokers offer them.  “Limited” accounts on the other hand, usually require an obligation to open a live account and to fund it. The demo accounts provided by brokers that offer limited practice accounts are usually available for a limited time only, which is how this category of binary options demo accounts got its name. Some accounts are open for two weeks, some are open for a month or even more.

There is a way to get around the limitation. The trader may either use different email addresses to open the demo account, or may opt for a small-deposit live account which requires only a small commitment of real money.

Some have argued that small-deposit practice accounts are the best, as they allow the trader to practice, optimize trading bots and practice risk management using real trading conditions. It is as close to the real thing as it gets.