Why Do So Many Brokers Refuse to Offer Demo Testing?
Have you been looking for a binary options broker to trade with? If so, you have probably noticed that some, but not all, offer demo accounts. A demo account is an account which allows you to test out the platform for free and practice with fake trades. The trades use real-life data and happen in real-time, but you do not gain or lose money on them. Demo trading is an extremely important step in becoming a trader if you want to be profitable, but the fact that so many brokers refuse to offer it may make you wonder if it is really that important.
Demo testing is very important.
It is in some ways the most essential step you can take if you want to trade professionally. When you demo test, you are accomplishing a couple of key things at once:
- You are testing the broker’s platform to make sure that it is error-free and easy to use. Not all binary options websites are equal. In fact, two brokers can use the same white label software (such as SpotOption) and still not offer equal performance. Brokers are limited by their bandwidth and other features of their hosting.
- You are testing your own strategies to ensure that they work. You may have done extensive back testing already (hopefully so), but that is not the same thing as testing in real-time, which is a totally different experience. You need to see how your system performs in real life, and find out whether there are any additional tweaks you need to make.
So if demo testing is so important, why do so many brokers send the message that it isn’t?
It would be hard to take a guess at a percentage, but I am thinking out of all the binary options brokers I have investigated or reviewed, probably only 10% offer demo accounts of one form or another—and no, several risk-free trades upon making your first deposit does not count. Demo accounts are often severely restricted as well. You may for example only be able to use the demo account for a few days or a couple weeks before you trade live. While this is certainly superior to no demo account at all, it is not sufficient for accurate, thorough testing.
Unlimited demo accounts are even rarer, but they are by far the best. One broker we like a lot who offers a genuine unlimited demo account is MarketsWorld. With an unlimited demo account, you can test to your heart’s content for as long as you want—years if necessary—before you trade live. There are no strings attached. With MarketsWorld, you do not even need to make a deposit. With the majority of unlimited demo accounts, you need to make a minimum deposit before you demo test.
I once had a chance to ask a broker about the dearth of demo accounts on binary options websites. After all, I remembered seeing demo accounts on practically every Forex site I had ever visited. Why should it be different with binary options? The response I received was surprisingly reasonable.
A lot of traders assume the reason is one of the following:
- Demo testing is not truly important. If it was, brokers would all offer it.
- Brokers want you to fail, so they do not offer demo testing. If you do well, they do not make money. It is in their interests to cost you as much money as possible.
Neither of these assumptions is correct.
The reality is that binary options brokers are likely to make money no matter how many amazing features they offer you to become a better trader. Why? First off, they make money on the difference between the payout percentages and the out-of-money refunds. There is a slight gap that plays in their favor, and behaves a bit like a spread in Forex.
Second off, the vast majority of binary options traders do not even use the features provided to them. They forgo demo testing anyway, or skip using helpful control features like early close, and lose money hand over fist. A few successful traders will always remain in the tiny minority. Brokers will always make money off of the majority, and build reputation off of supporting the minority. And let’s not forget, they are technically borrowing your money while you have an account, and they should be paying you interest on it. As they are not, that is one more way in which they are profiting. Brokers are fundamentally like banks.
The Real Reason Brokers Do Not Offer Demo Accounts
Here is the real reason you may have a hard time finding a demo account when you are looking for a binary options broker:
The majority of binary options brokers are tiny startup companies. There are hundreds of them springing up around the globe, and the vast majority are lacking in financial resources, particularly since regulation is so low. Many of these companies barely have enough money to afford their bandwidth. This is one reason the sites you look at are in such bad shape or do not staff their customer service desks.
This has created a vicious feedback loop. I spoke to a broker of a company that offers a demo account, deposit-only, and asked why they required a deposit. The reason, they told me, is that they used to offer an unlimited demo account with no deposit requirement, but because they were one of the very few, traders who planned on trading with other companies flocked to their site to test, and then fled back to their real brokers without depositing any money. In other words, they hogged all the bandwidth, and then left.
This is why most brokers who offer demo accounts do so to paying customers only, and at least require that you open an account. It is why most of those accounts are severely restricted. The landscape would probably look very different if more binary options brokers were not poorly funded startups to begin with. This is also why most of the companies that do offer demo accounts are larger and may even be regulated as one type of financial business or another—they meet the funds requirements to register.
What Should You Do?
You cannot simply bypass demo testing if you are serious about trading. If you are trading for fun only, you may want to skip demo testing to avoid using up unnecessary bandwidth on a binary option broker’s website, and you may also not need to search for a company which offers demo testing. Demo testing is really only offered with serious traders in mind. If you are gambling for fun, you do not need to demo test.
If you do need to demo test, you can avoid making the problem worse by choosing to demo test with a broker you are actually going to trade with—whether they require a deposit or not. And you can make sure that when you are searching for a company to trade with, you make a demo account one of your primary search criteria. That way you are not using up bandwidth on a site where you are not planning on investing money. This allows you to do your part in keeping the problem from becoming worse. At the same time, you are doing what you need to in order to become a profitable trader, and also sending the message that you value the inclusion of demo accounts on binary options sites.
Check out binary options brokers with resources and tools for you to use!