Demo accounts: what they teach and where they lie
What you learn in 3 minutesThe word demo comes from demonstration. On a trading platform it means a practice account funded with imaginary money, using live prices. A demo teaches the platform and the arithmetic honestly. It cannot teach fills in a fast market, and it cannot teach how losing real money feels. On AUD/USD around 0.6640, one pip on one standard lot is 10 units of the quote currency, which is about A$15.06 at that rate. That figure is the same on a demo and on a live account. What differs is whether the order fills at the price shown.
One pip on AUD/USD at 0.6640
| Step | Amount | Note |
|---|---|---|
| Position size | 1 standard lot | 100,000 units of AUD/USD |
| One pip | 0.0001 | the fourth decimal place on AUD/USD |
| Pip value in the quote currency | 10 units | 100,000 x 0.0001 = 10 |
| Conversion to A$ | A$15.06 | 10 divided by 0.6640, rounded to two decimals |
| Slippage of two pips | A$30.12 | 2 x A$15.06, the cost if the fill is two pips away |
A broker may round the pip value, quote a spread on top, or fill at a different price in fast conditions. These vary between brokers.
The mistake people make here
Many people treat a demo as proof that a strategy works. On a demo, orders often fill at the exact price shown, because the order is not sent to the market. On a live account, a fast market can fill an order several pips away, and a requote can appear instead of a fill. Instead, use the demo to learn the platform and to check the arithmetic, not to judge the result. Then place one small live trade and compare the fill you asked for with the fill you received.Check yourself
On AUD/USD at 0.6640, what is one pip worth in A$ on 0.10 lots?
One pip on 0.10 lots is 1 unit of the quote currency (10 x 0.10). At 0.6640, that is 1 divided by 0.6640, which is about A$1.51.
A demo fills at 0.6640 and a live order fills at 0.6638. How much did two pips of slippage cost on one standard lot?
Two pips at A$15.06 each is A$30.12. The live fill was two pips away from the demo fill, so the difference is A$30.12.