Make Simulated Trading As Close to Live Trading As Possible

The Challenges of Simulated Trading

Simulated trading presents us with a dilemma:

On one hand, there can be a great discrepancy between simulated and live results. Demo platforms were designed to help traders learn the platforms, not the markets. As simulated orders are not driven by real supply and demand, what works in a simulated environment may not work in a live setting.

On the other hand, simulated trading is the closest experience you can have to live trading. Platform simulations still use live data and often real-time data. The only thing that’s missing is your interaction with real live market participants. It can be a critical absence, but you have almost everything else that makes a simulation “virtually real.”

So how can you take advantage of a simulation, using it to prepare you for a live environment without fooling you into thinking that a live environment is as easy as a simulation? It’s all on you, not only how you use a simulation, but how you study and compensate for the discrepancies once you attempt to transfer your skills from the virtual world to the real one.

Here are a few tips to help you along:

  1. Trade only with the amount of capital that you would have in your real account. If you have only $10,000 to trade with, don’t trade with more or less than that amount. Keep it real, even if its not.
  2. Place only trades that you would attempt in a live environment, including realistic stops and position size. Practice what you plan on doing in the markets. Otherwise, you’re just entertaining yourself.
  3. Don’t mix up the strategies you are “rehearsing” for the live markets and strategies you are experimenting with for further research and development in the same account. In a live environment, you probably wouldn’t trade a half-baked strategy on a whim; so don’t do it in your sim account.
  4. Once you go live, study any discrepancies between simulated and live performance. Some strategies may not perform similarly in either environment. This likely has a lot to do with trading frequency, the use of limit orders that may not always get filled in a live market, or wider slippage. If the discrepancy is large, then perhaps the only way to test and practice a strategy is by trading it live.

One thing you will not be able to simulate is the raw emotions of experiencing real gains and losses, and the anxieties that may accompany both. Experiencing live trading can be a truly sobering experience, one that may take time to get used to, as if it had its own learning curve.

Once in the live market, will you be able to stick to your strategy? If you are having a losing session, can you stop yourself from trading haphazardly, from taking larger “bets” or placing trades that you have not carefully planned? These are important questions, as they address your psychological capacities and limitations as a trader.

The only way to know for sure is to do it. And you may not move from demo to live once, but perhaps many times, as you may eventually test many different strategies, or tweak strategies that you are currently using.

What you don’t want to do, however, is to spend months trading in sim mode only to realize, once you’ve mastered a strategy, that it doesn’t work in a real market.

Ironically, a simulation can be used to pre-test a live strategy, but only a strategy traded live can test the true value of its simulation.



Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations.  There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.