Eejit's Guide

The Beginning

I started investing my own money in 2021 with no prior experience, and I want to share some insights into the common pitfalls that many beginners, including myself, face. When I first started, I had no idea how to begin investing.

From my perspective, getting started was surprisingly easy. There are many brokerage platforms available, and as a UK investor, I personally use Etoro. The signup process was straightforward, and I found the user interface to be intuitive. I can trade conveniently on my phone, which works well for me. While it may not be the best platform for everyone, it’s the one I use and feel comfortable with.

First Mistake: Not Utilising the Demo Account

Like many new investors, I was eager to jump right in. Most brokers provide a demo account, which comes with a set amount of virtual money for practice trading. This feature is incredibly useful for testing strategies and understanding market fluctuations without the risk of losing real money.

However, I made the common mistake of skipping the demo account. After experiencing a few initial wins, I felt overconfident and moved straight to a live account. Unfortunately, my success in the demo phase didn’t translate into real profits. I became complacent, and when trading with actual money, I ended up losing instead of winning.

The Benefits of Using a Demo Account

If I could go back and give my younger self advice, I would stress the importance of treating the demo account as if it were real money. In my early days, I made trades using 20% of the demo account’s balance—something I would have never done with real funds. Here’s why fully utilizing the demo account is essential:

1. Risk-Free Learning: Like most aspects of life, making mistakes is part of the learning process. I would much rather lose virtual money than real money any day! Using a demo account prevents the risk of blowing up a real account due to inexperience.
2. Getting Familiar with the Trading Platform: Different brokers have different user interfaces. Navigating them efficiently is crucial. The demo account helps you understand basic functions such as order placements, stop-loss settings, and technical analysis tools without the pressure of real trades. It might also be worth exploring other charting tools like TradingView to improve technical analysis skills.
3. Understanding Market Trends: Before getting bogged down in complex trading strategies, I would advise any beginner to focus on identifying market trends. Is the market in an uptrend, downtrend, or trading sideways? This fundamental understanding can be eye-opening—especially in markets like cryptocurrencies, where extreme volatility can cause prices to rise or fall by 20% or more in a single day.
4. Testing Different Strategies: While I suggest avoiding an overload of strategies at the start, a demo account offers a risk-free way to test various approaches to see what works best for you.
5. Developing Emotional Discipline: Trading involves emotions like fear and greed, which can lead to impulsive decisions. Practicing with a demo account helps build patience and emotional control before transitioning to live trading.
6. Improving Risk Management Skills: Managing risk is one of the most critical aspects of investing. Placing 100% of your account into a single trade can be a quick way to lose everything. A demo account allows you to practice setting stop losses, determining position sizes, and implementing strategies to minimize potential losses. Personally, I follow a rule of keeping my position sizes to only 1% of my total account balance.

The Takeaway

Take your time. Investing is not a race. Don’t make the same mistake I did—use the demo account extensively before moving to real money trading. Executing numerous small trades in a simulated environment will help you gain experience, improve your strategies, and, most importantly, prevent unnecessary financial losses.

Did you manage to utilize the demo account effectively when you started trading? Share your experiences in the comments!