Stock Trading Software

How valuable is testing a strategy with your stock trading software in demo mode? Demo trading, if done right, can be very valuable. However, a common mistake is made when someone pays too much attention to the actual dollars and cents he has been making while using his trading software in demo mode.   The reason is that demo trading has a big flaw. The flaw is that no orders are actually routed and executed and no real money is at risk.

"I had a class one time in which one of my students told me that he had been doing great trading in demo mode and had been consistently making money at it. He felt he could take on Wall Street the following week. I asked him a few questions and saw that he didn’t realize that you can’t always buy on the bid and sell on the ask.

At this point, I started my stock trading software in demo mode, and I asked the class, “How long do you think it will take me to make $5,000 trading only 1000 shares of MSFT?” Well, it didn't take very long, because when my trading software was set to "paper" trading,  in which I placed a buy on the bid and sell on the ask orders, every stock trade that went at the bid price or lower filled my buy order, and every print that went on the ask side or higher filled my sell order.

It was so easy that if anyone, who knew nothing about stock trading, was watching what I was doing with my stock trading software in demo mode, he would have quit his day job thinking to himself that he could do what I just did without any problem. Once the total P&L hit north of $5,000, I turned to the class and asked, “How many of these stock trades do you think I could have actually executed if if my trading software was in "real" mode?” T.Oz 

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