The Ultimate Guide to Demo Trading on Nadex
If you have been looking for a binary options exchange you can trade with confidently and be certain that your money is safe, then you have been searching for Nadex.
Nadex is one of the world’s few CFTC-regulated exchanges.
That means that you can trade there legally no matter where in the world you are located, without worrying about complex regulatory issues. It also means that you get to take advantage of the CFTC’s oversight.
That is just the tip of the iceberg however when it comes to what Nadex has to offer. This exchange offers numerous outstanding benefits, including:
- A free Nadex demo account you can use as long as you wish (what I will be focusing on today in this article)
- Security for your funds, which are kept in a segregated account
- Easy and fast withdrawals (withdraw your money at any time with no restrictions)
- Amazingly high payouts when you win (100%+ on average)
- Advanced charting software which you can access without downloading on the Nadex website
As I just mentioned, demo trading is what I want to delve into today. This is one of the most powerful tools Nadex offers you.
Why You Need to Demo Trade
It seems absurd in some ways even having to start out this way, but I would not doubt if there are binary options traders who literally do not have a clue what a demo account is.
The reason I say it is absurd is because a demo account is not just something nice to have around—it is vital to success in trading.
In other types of trading, nobody questions this. For example, if you were learning how to be a Forex trader, you would have it drilled into your head again and again that you need to always demo trade before you trade for real.
So what is demo trading?
Simply put, it is a way for you to do a dry run of your trading before you put your hard-earned cash on the line.
When you demo trade, everything is exactly as it will be when you trade for real, except that you have virtual currency in your account instead of real money. You are trading using the same interface, and you are testing your strategies on real-time market data.
People who skip demo testing are impatient to start making money. They usually justify their decision by saying,
“Why should I trade for virtual money when I could already be making real money?”
The answer is that you will screw up.
Plus, you do not know your system can profit in real-time until you have tested it in real-time.
Here are the steps you should take every single time you come up with a new trading strategy or make major modifications to an existing strategy:
1. Begin with backtesting. This is a process where you scroll way back in time on historical charts. You step the charts forward bar by bar “as if” things are happening in the present. When you see a trade setup, you make a decision over whether to take it. You then step forward bar by bar, making the same exit decisions you would make in real life. You find out whether you would have won or lost, and you record it.
2. Next, move to demo testing. Once you achieve excellent results in backtesting, you try out your strategies in real time.
3. Move on to trading with real money. After several weeks or months of high profitability in demo testing (depending on the timeframe you are trading and how many trades you execute in a given period), you are ready to trade with real money.
Demo testing with binary options is actually extra important. Why? There are some aspects of trading you cannot backtest when it comes to binary options. You know when you would want to take a trade, but you cannot be positive whether an opportunity would be available in real life to enter into one. You also can only guess at the expiry times which would be available. Because of this, you cannot get a totally accurate impression of the trades you would win and lose. You can only get that in demo.
Demo testing gives you the following indispensable benefits:
- Know whether your strategies really will work on real-time data using entries and exits which are actually available.
- Get to know your way around the Nadex platform (extra important, as the Nadex platform may be confusing to a newcomer).
- Make sure that you can reconcile trading with the rest of your life. Real life includes your day job, your other obligations, sleeping, eating, and so on. None of this stuff is an issue in backtesting. So it is often a surprise just how much these commitments can interfere with trading. It may take you weeks to figure out workarounds for scheduling conflicts.
- Deal with your nerves. You may be surprised how nervous you get trading in real-time for the first time, even without your money on the line! To some degree, you will not be able to get around this, but demo trading at least offers you a transitional step. Get used to that first, and you will hopefully be a little less anxious when you start staking real cash.
- Avoid burning a hole in your wallet. Why lose money you don’t have to lose? It is pretty much a guarantee that you are going to blow unnecessary cash if you jump straight into trading with real money. Thanks to demo trading, you do not have to lose a penny learning how to trade.
You should be sold on the idea of demo testing. If you are not and still feel impatient, you probably are not cut out to be a profitable binary options trader. You can still gamble for fun—just do not go in expecting to get rich!
Open a Demo Account on Nadex in 3 Easy Steps
Ready to get started demo testing on Nadex? Here are the steps to get you started. You can be up and running within literally just a couple of minutes.
1. Navigate to Nadex.com/demo.
This is Nadex’s page for opening a demo account. As you will see in the info in the banner at the top, “Your lifetime binary options demo lets you keep practicing after you open a live account.”
This is a big deal. Most binary options brokers only let you demo test for a few weeks, and then shut your demo account down forever! Even though demo trading is used mainly to practice before you trade live with real money, you will need to come back to it in the future to test changes and improvements to your strategies.
2. Register your account.
Scroll down past the banner, and you will see a few input fields. This process is much less involved than opening a live account. You just pick a username and enter in your name, country, phone number, and email address. Be sure that all the information you provide is real.
Note that every username must start with “demo-” at the beginning. You need a minimum of six characters after that. Once you have filled out all the fields, click the orange button which says “Open a Demo Account.”
3. Check your email for your login credentials.
Your account will automatically be activated after you click on the orange button. At this point you need to log in to your email account to look for the confirmation email. This will include the password you need to log in to your new demo account. If for whatever reason you do not receive the email (be sure to check your spam filter), you should contact customer service at email@example.com, or call 877-776-2339.
Logging Into Your Nadex Demo Account
This should be straightforward, but it is actually pretty easy to get it wrong. The username formatting can be confusing. Once you get used to it, though, it’s not a big deal.
1. Navigate to Nadex.com/login.
This is the login page for demo and real accounts. It is pretty self-explanatory. You will find the input fields in the blue box on the left-hand side of the page.
2. Input your username and password and check the boxes.
Since this is a demo account, you will need to make sure you check the box that says “Demo account.”
This should result in the phrase “demo-” appearing in the username box. Remember, this is part of your username. So you have to make sure that your username follows that format, i.e. “demo-JaneDoe” when you enter it in. Do not type “demo-” again when you enter in your details. It is already there; it does not need to be there twice.
I also suggest checking: “Remember my username on this computer,” for the simple reason that the above can be confusing. If you check the box, your username and password will always be entered in correctly and you can just click “Login” in the future and go straight to your account.
Getting Used to Nadex Trading Platform
Once you are logged in, you will find yourself on the Nadex platform. You will notice it looks nothing like SpotOption (which you are probably more used to if you have done binary trading elsewhere).
I highly recommend reading Explaining a Nadex Ticket at this point. In that article, I walk you through the complexities of the platform and simplify things to the highest degree possible.
You may feel discouraged at first. But try not to get too disheartened. Nadex isn’t really hard to use. It is just new. If you sit down and really concentrate, you can probably figure out most of the ins and outs of the platform within a couple of hours. Do some experiments. Remember, you have nothing to lose!
How to Run a Demo Test
So let’s say that you have opened a demo account and you have taken the time to learn your way around the platforms. You have a reasonably solid understanding of the tickets, and you have already run a successful backtest on a trading system. How can you now proceed to run a demo test?
Conducting a demo test is basically just like conducting a backtest, only you are doing it live. For the purposes of this discussion, I am going to assume you may be brand new to testing trades altogether. Maybe you have never run a backtest in your life. If so, what I am about to tell you will help you learn how to do that as well.
1. Start by creating a spreadsheet to keep track of your trades.
Your first step is going to be to make a spreadsheet where you can keep track of your wins, losses, and and other vital statistics. If you have been backtesting, you probably already have a spreadsheet, and you can just use a blank version of the same one. Eventually you will also use one of these spreadsheets to track live trades with real money.
If you have never created a trading spreadsheet before, here is what I recommend you include:
Start by creating six columns.
1. The first will say “High/Low.” In it, you will record whether you picked “High” or “Low” for a given trade.
2. The next column will be labeled “Date,” and of course will include the date you took the trade.
3. The third column should be labeled “Reason,” and include the justification for the entry.
4. The fourth column should say “Entry.” Here you will record the price of the asset when you entered your trade.
5. The next column should say “Exit.” This will be the price of the trade when it expired and/or you closed out early.
6. The sixth and final column should say “Value,” and record how much you won or lost.
All of this will make it easy to keep track of your trades as they unfold. At a glance you will be able to see whether most of your trades are winners or losers (I recommend coloring negative values in red). The “Reason” column will help you to spot any patterns in trade justifications which are working versus not working and why.
You could even have a seventh column labeled “Notes” where you delve into more detail about trade justifications, unexpected occurrences, and exit decisions. I always just record all this under “Reason,” but how you want to handle things is up to you.
Next you should create a section on your spreadsheet where you will run some formulas to calculate statistics. I suggest the following:
- Total number of wins.
- Total number of losses.
- Average win size.
- Average loss size.
- Net profits (do not forget to subtract the commissions on each trade!).
- SolQ (Your net profit divided by your maximum loss).
- Your largest losing streak.
- Total wins for each specific type of entry.
- Total losses for each specific type of entry.
I also recommend to the right of this (or wherever you have space), you write out the rules for the demo test session. Record your entry and exit rules, timeframes you are looking at, expiry periods you are using, and so on.
Below this, you can record any overall observations or lessons you have learned through the course of running the test.
Every demo test should cover a specified time period. I strongly suggest that you stick with just one or two assets in the beginning. Yes, that may sound severely limiting, but it really is not. You can actually make a fine living trading just one or two assets forever.
2. Watch your charts and place your first trade when a setup appears.
Have your spreadsheet ready? Great! You are ready to actually start demo testing.
To demo test, do exactly what you would do if you were trading with real money, following the exact same rules you did when you were backtesting.
Begin by watching your charts. Wait for a trade setup to appear. If you would have taken that setup during backtesting, you are going to want to take it now. Remember, you are trying to replicate the same great results you got during backtesting.
When you place the trade, record the entry, type of trade (High or Low), and justification in your spreadsheet.
Place your trade by opening a Nadex ticket on your demo account!
3. Let the trade play out and/or exit early, following the same results you used in backtesting.
Next you wait. You can either wait for the trade to play out and expire at the specified time, or you can exit early. Nadex’s Early Close feature is fabulous, because you can use it to exit a trade anytime you want. Other brokers will restrict your use of the feature so that it is only available under certain circumstances, say only if you are winning, or only if you are losing.
With Nadex, you can get out early in either circumstance. So if you are winning but you see things turning against you, you can close out early and get out with a partial profit (or breakeven). If you are losing and you do not want to blow your entire stake, you can limit that loss with an early exit.
Closing out early on Nadex is a little complicated. You basically need to open a second ticket which is the reverse of the original ticket, and this will close the trade. Someone does have to be willing to take the other side of the trade (Nadex is a real exchange), so the feature does not always work. To learn more about this, see Explaining a Nadex Ticket.
Remember, whether you ride out a trade or exit early, make the decision you would have made during backtesting. This is not as easy as it sounds. When you are anxious and stuck waiting, you can end up second-guessing yourself. Backtesting never forces you to sit on your hands like this, so it is a whole different experience.
4. Record the result and take notes on the outcome.
Once your trade concludes, record the exit value and results in your spreadsheet.
Now take any additional notes you may have. Perhaps the trade taught you something about a particular entry type. Maybe you exited early when you should have stayed in, and now have learned a lesson about letting your nerves get the better of you. Maybe you stayed in when you should have gotten out. Whatever you learned, write it down on the spreadsheet or in a separate trading journal. A smart practice is to write a short summary version in the spreadsheet, and then write a more detailed version in a separate log if you have one.
5. Rinse and repeat.
Now that you have placed your first demo trade, you should have a pretty solid idea what to do going forward. Keep taking trades as they appear, continue recording results, and learn everything you can along the way.
6. Make modifications to your schedule as needed.
You may discover that you run into scheduling conflicts when you trade. For example, maybe you didn’t notice while backtesting that your system requires you to place trades (or exit them) during the dead of night.
A lot of newbie traders who jump right into trading live do not see these challenges looming on the horizon. They end up losing money for the simple reason that they do not yet know how to balance their commitments.
There are ways of troubleshooting your way around a lot of scheduling conflicts—even those that may seem insurmountable. Depending on how severe the issues are, it may take months of rearranging your life before you figure out something that works. But if you are determined and smart about it, you will come up with an answer (just make sure that the answer does not involve giving up work, food, or sleep!).
7. Troubleshoot any technical or psychological problems that crop up.
Scheduling issues are likely not the only problems you will encounter while you are demo testing. Chances are good that you will also run into some issues with where your system does not perform as you expect it to. Maybe you will also find that you struggle to manage your emotions when you are in a real-time situation.
You will need to troubleshoot these problems and come up with working solutions before you trade live. Doing this in demo prevents you from sabotaging your trading account. You can see how taking the time to demo trade can save you a ton of money!
8. Keep an eye on your statistics.
As you demo test, keep a careful watch on your statistics. See how they compare to your backtesting stats. Expect your numbers to suffer somewhat in the beginning. If you are feeling impatient, this is a great reminder of why it is so important to take the time to do this. All of that money lost on paper is money you still have in your wallet!
Over time, as you iron out the issues you encounter trading in real-time, your statistics should recover. Once they are reasonably close to what you achieved in backtesting, you can complete your demo test.
Keep in mind that you should demo test long enough to achieve meaningful statistical results! If you just happen to win your first three trades, do not suddenly switch to trading with real cash. A handful of wins does not constitute profitability. It very well could be a fluke. Test for at least a few weeks so that you have plenty of data. If you use longer expiry times, you may need to test for several months.
9. Go live when you are profitable!
Have you achieved profitable results with several months of demo testing? Do you feel confident using the platform? If so, you are finally ready to open a real account on Nadex and make a deposit.
Nadex does not offer bonuses, but they do offer commission-free trading days. Ultimately this promotion actually has a higher value.
You will notice even after demo testing that trading with real money is a different experience. The actions you are taking are exactly the same, but your emotions will likely get in the way. For this reason, I recommend that you fund your account with only half of what you ultimately plan to trade with. Once you are trading profitably with that, you can finish funding your account.
Remember, if you ever experience an unexpectedly long losing streak, you can always halt your live trading and go back to demo! In demo mode, you can troubleshoot the problem without it costing you any more money. Once you find the solution, you can resume trading profitably.
This is the added value that Nadex gives binary options traders. On Nadex, your demo account isn’t just a temporary learning tool—it is a long-term tool for risk management, problem solving, and ongoing research and development. It will fuel your growth on the path to becoming a professional trader!
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