How To: Test Your Trading Skills Without Spending a Dime

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Practice makes Perfect …

“I read this article a while back, that said Microsoft employs more millionaire secretaries than any other company in the world. They took stock options over Christmas bonuses – it was a good move. I remember there was a photo of a groundskeeper standing next to his Ferrari, blew my mind. You see things like that and it plants seeds, makes you think anything is possible, even easy.

Then you turn on the TV, and there’s just more of it. The $87-million lottery winner, that internet stock that shot through the roof, you could have made millions if you had just gotten in early, and that’s exactly what I wanted to do – get in.”

-Giovanni Ribisi – Boiler Room (2000)

Do you fancy yourself as a superstar trader?

That speech from the movie Boiler Room should leave you itching to make your fortune in the market. If you think you have what it takes to compete on the global stage for your piece of the liquidity pie, then why not give it a try?

Here’s everything you need to know about testing your trading skills – without spending a dime.

Investing in the global financial markets can cost you your shirt if you aren’t careful. You need a mentor, a strategy, and a sizable starting account if you want to take a chance at the big time. However, few people are willing to take the risk of putting their money where their mouth is when it comes to trading.

The thought of blowing up an account and losing all of your money may terrify most first-time traders.

However, what if there was a way to hone your trading and investing skills, without taking the financial risk?

How to find a Mentor – For Free

There are hundreds of online investment schools that teach people how to trade the markets. Each of them offering a strategy that they adapt to specific markets.

Some teachers provide strategies on forex, while others focus on equities or bonds. You need to decide which niche suits your investment style and financial interests.

When checking these mentors, it may shock you to discover that they charge thousands of dollars to teach you’re their investment strategy.

If you don’t have that kind of money available for your education, then there are plenty of free options available to give you an idea of how to trade a strategy.

YouTube is an outstanding resource for anyone that’s learning how to invest and trade. The site comes packed with thousands of videos from various traders that share their strategy.

While none of them will give you a full breakdown of their strategy, there is plenty of useful information available if you look around the channels.

Forex Trading

Read: What is Forex Trading? Complete Beginner’s Guide

Sign Up with A Broker

After you obtain the knowledge you need to invest and trade the markets, you’ll need to start putting it into action.

There are hundreds of online brokers that allow investors to sign up for a trading account on their platform. If you want to test your investing skills, then you’ll need to open an account with one of them to gain access to the market.

After opening your account, you have the option to download a trading platform. The trading platform is a piece of software that allows you to access any market you like. Forex, options, equities, commodities – they are all there at your fingertips.

Brokers offer online platforms accessible from your smartphone. This technology allows you to trade and test your investment skills. Practice on the platform while you’re on your lunch break or during your commute home from your day job.

It may take time to understand the nuances the platform, how to place a trade in real-time, and when to take profits. As with anything you try to master in life, you’ll need to find a mentor to help you fast-track your progress in learning how to invest in the global financial markets.

How Do Brokers Pick Stocks

Read: How Do Brokers Know Which Stocks to Invest In?

Brokers and Platforms

There are various software platforms available online from brokers. Some brokers offer in-house, custom-built software to their clients, while others may rely on generic platforms, such as MetaTrader4.

When selecting your broker, you may have to choose an offshore-facing company. Many U.S-based brokers won’t open accounts for American clients that don’t have a minimum starting deposit of $25,000. This requirement doesn’t help you if you don’t have any money to put into the markets right now. The reason why U.S companies require such a large deposit is due to something called the “Professional Day Trader Rule” or PDT rule for short.

After the 2008 financial crisis that nearly crippled international markets, the U.S government introduced this legislation. This intent was to protect U.S consumers and prevent them from speculating on the markets with money they could not afford to lose.

Unfortunately, the PDT rule means that you’ll have to go to an offshore broker to open a trading account so you can gain access to their platform. Offshore brokers do not have to comply with the PDT rule, even if American citizens sign up for an account.

Free Trading Platforms Compared

Read: Free Trading Platforms Compared: MetaTrader 4 vs MetaTrader 5 vs cTrader

Playing with Fake Money

After signing up with an offshore broker, you don’t have to send them any real money to access their platform. Most offshore brokers are okay with you opening a “demo account,” in the hope that you decide to choose them when it comes time to invest with real money.

To whet your appetite, the broker allows you to open a trading account using fake or “paper money.” Therefore, you get the opportunity to take trades using leverage, and fake money, to test your skills before you place a real deposit in a trading account.

Paper trading is an excellent way to test your mettle against the market and find out if your strategy works. As a bonus, you don’t take any real financial risk. So, if you blow up your account, then you don’t have to worry about losing a dime to the market.

The broker places no pressure on you to make a real deposit. You can keep playing around with your demo account until you feel confident to transition to a “live account.” Some brokers may try to entice you to start trading with real money by offering you a “bonus” for depositing hard currency into their account. However, in most cases, the broker limits these bonuses to a few hundred dollars at most.

Trading Software Compared

Read: Trading Software Compared: TradingView vs. Sierra Chart

Testing Your Skills – Blow Up Your Account

When playing around with your demo account, it’s a good idea to push the limits of your strategy, and see what it takes to blow-up your account. By blowing up an account, we mean taking as much risk as possible to see how long it takes you to lose all your money. If you learn how not to trade with your paper account, then there’s less risk that you’ll fail when starting live.

Experiment with leverage, and try investing in various markets to get a feel for how the asset classes move every day. For instance, in the forex market, investors trade more than $5.5-trillion worth of currency every day – that’s a staggering amount of money. If you want to get a piece of the pie, then you’ll need to learn what not to do, before you go out and take a position.

Understand Risk Management

So, you’ve been playing around with your strategy, and you may have blown up an account or two, or made a killing. Either way, it’s time to learn some risk management. Risk management is the backbone of investing and trading. Without the correct risk management in your trading, you are doomed to fail – it’s only a matter of time.

Risk management describes how much money you trade with, relative to your account size. You had plenty of fun trying out the trading platform and messing around with fake money, but now it’s time to get serious. Using massive leverage, or trading to the short side exposes you to the risk of losing more money that is in your account.

As a result, if the market turns on you in a trade, and you don’t have the correct risk management strategy in place, you could end up losing more than your original investment. The broker will come after you to collect on the additional funds you lost using leverage.

It’s for this reason that risk management is so important. Risk management teaches you how much money you can afford to risk on a single trade. If you take a position with all of your investment funds in one trade, what if it goes wrong? No trader is right all the time, and even the best traders and investors only have a 70-percent accuracy at winning.

Therefore, you need to understand how many losing trades you can make before your account blows up, and you have no more funds left to trade. By limiting your risk in each trade, you live to trade another day if the market goes sour on you.

How to Start Investing

Read: How to Start Investing (Even With Small Amounts): Complete Guide

When is it Time to Invest Real Money in the market?

You’ll know you are ready to trade when you are consistently profitable. What does it mean to be consistently profitable? If your accuracy is over the 60-percent range, meaning that you win more than you lose, then it’s only a matter of time before you consistently make profits.

However, many traders and investors struggle with transitioning from a paper trading account to a live account. You may find that when you finally do go live, you start experiencing emotions, especially when you lose. As a result of your emotional response, you may begin to alter your strategy.

Your strategy is the most crucial part of your trading. If you start to deviate from it and break your rules, then you will struggle to be consistent. Traders and investors need a consistent approach to the market and a solid trading plan. If you don’t have either of these in place, then you are not investing, you are gambling.

As we know from countless movies and TV shows, the house always wins when it comes to gambling. If you take a look at the top poker players in the world, they have a consistent approach to their gambling. They have a set of rules that they don’t break, and if they find themselves breaking the rules, then they walk away from the table.

It’s the same with investing and trading. You need a consistent trading plan and a set of rules that you follow every day, regardless of your emotional response to the markets. When you break your rules, it’s almost sure that the market will take your money. Every trader and investor struggles with coping with a loss, and no-one likes to see their money slip out of their account.

However, it’s how you deal with the losses, as well as the wind that makes you a good investor and trader. If you struggle with managing your emotions, join a trading chatroom. The chatroom is a great place to meet other traders and discuss these sorts of topics with them. The members of the chat all look out for one another. They are there for you when you are struggling to deal with your emotions and remain profitable.

Some Brokers to Take a Look At

Beware of the “B-Book”

Eventually, you’ll reach a place where you want to give live trading a chance. Using your own money in the markets is a haphazard practice, especially if you are a first-time investor. It’s for this reason that you should avoid opening a live account with an offshore broker unless you know what you are doing.

Brokers monitor all of their traders, even when they are playing around in the demo. When you decide to go live, they have a complete view of your trading history. The admins on the broker’s platforms have the training to discern a newbie that knows what they are doing, from someone that is a first-timer, and likely to blow up their live account.

Therefore, the broker classifies these traders into two different “books.” The “A-book” is for new traders that they think will do well and make money from their trading. The “B-Book” is for new clients that they believe will blow up their account.

Instead of providing the B-Book clients with access to the real market, these brokers front them the market, and trade against them, in the hope that they will lose. As more than 80-percent of newbies lose their account within 6-weeks of starting, the broker pockets this cash.

Wrapping Up – Key Takeaways

Before you get started investing, it’s vital that you find a mentor. Register with an offshore online broker, and start playing around with their software.

Learn how to execute a strategy and how to become consistent with your execution. When you’re ready to go live, be careful which offshore broker you use.

Get recommendations from other investors before you commit your funds to a live account.


Oliver Dale is Editor-in-Chief of MoneyCheck and founder of Kooc Media Ltd, A UK-Based Online Publishing company. A Technology Entrepreneur with over 15 years of professional experience in Investing and UK Business.His writing has been quoted by Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch & More.He built Money Check to bring the highest level of education about personal finance to the general public with clear and unbiased