In practice - often because of the lack of a real money commitment - results achieved from trading in a demo account can differ considerably from actual live trading results. Even if a person performs extremely well trading a demo account, their results in a live account often differ considerably. In general, this phenomenon tends to arise because when your own funds are at risk, a different trading mindset often ensues than when trading with virtual money.
This potentially significant difference factor needs to be taken into account by a trader when assessing the value of a particular trading strategy or the services of a forex broker they are testing.
The primary reasons that such differences can be observed between live and demo account trading tend to fall into two main categories: execution related and trader related. Each of these categories will be discussed in greater detail in the sections below.
Execution Related Differences Between Live and Demo Accounts
The following potential causes for performance differences observed between live and demo account trading can be attributed to execution issues:
A forex broker may never requote a price to a demo account trader, but they might often requote live prices in actual practice.
The broker's price feed and dealing spreads for demo trading may well differ from the pricing that is provided for live trading accounts.
The broker may execute demo stop loss orders accurately, but considerable slippage may occur in a live trading environment.