Demo accounts: what they teach and where they lie
You will work out the value of a pip on EUR/USD, then see how a small amount of slippage changes the result. The point is not to scare you. The point is to show that a demo is a calculator, not a rehearsal for the feeling of losing money.
Compare a demo fill with a live fill
A demo account fills your order at the price on the screen. A live account fills your order at the first price the broker can match. In a quiet market the two prices are close. In a fast market they are not. This gap is called slippage, and it is the first thing a demo cannot show you.
Take the same trade on both accounts. You buy one standard lot of EUR/USD at 1.0850. On the demo, the order fills at 1.0850. On the live account, the price has moved by the time your order arrives, so the fill is 1.0852, which is 2 pips worse. Your position starts 2 pips behind before the market does anything else.
The cost of that gap is fixed by the pip value and the exchange rate. One pip on one standard lot of EUR/USD is 10 USD. At KSh 130 to the dollar, one pip is KSh 1,300. Two pips of slippage is 2 x KSh 1,300, which is KSh 2,600. On the demo that KSh 2,600 never appears, because the demo filled you at the price you saw.
Calculate the pip value in shillings
A pip is the smallest standard move in a currency pair. For EUR/USD it is the fourth decimal place, so a move from 1.0850 to 1.0851 is one pip. The pip value depends on the lot size, not on the direction of the trade. You need this number before any comparison makes sense.
One standard lot is 100,000 units of the base currency. On EUR/USD, one pip on one standard lot is 10 USD. Convert that to shillings using the exchange rate you are given. If the rate is KSh 130 to the dollar, then 10 USD x KSh 130 = KSh 1,300 per pip. A mini lot is one tenth of a standard lot, so one pip is KSh 130. A micro lot is one hundredth, so one pip is KSh 13.
Now apply the number to a result. A demo shows a profit of 20 pips on one standard lot. Before any costs, that is 20 x KSh 1,300 = KSh 26,000. The arithmetic is honest on a demo and on a live account, because it is the same arithmetic. What differs is the fill price you start from, and the costs that are taken out afterwards.
Account for costs the demo hides
A demo often shows a clean profit or loss. A live account shows the same trade with the spread, the commission and any rounding taken out. These costs vary between brokers, so no single figure applies to all of them. You have to read your own broker's terms to know what you pay.
The spread is the gap between the buy price and the sell price. You pay it when you open the trade, because you start on the wrong side of the market. A commission is a separate charge per lot, and some brokers charge it while others build it into the spread. Rounding means the fill may land on a slightly different price than the one you saw.
Put the three together and the KSh 26,000 from the demo is not the amount that reaches your account. Slippage may have cost KSh 2,600 before the trade even began. The spread and commission come out on top of that. The demo teaches the platform and the arithmetic honestly. It cannot teach the size of these costs, because they are set by the broker and change with market conditions.
One pip, two fills, and a gap of KSh 1,300
| Step | Amount | Note |
|---|---|---|
| Instrument and price | EUR/USD at 1.0850 | The quote currency is USD. One pip is 0.0001. |
| Trade size | 1 standard lot | One standard lot is 100,000 units of the base currency. |
| Value of one pip in USD | 10 USD | 100,000 x 0.0001 = 10 units of the quote currency. |
| Value of one pip in KSh | KSh 1,300 | 10 USD converted at a rate of KSh 130 to the dollar. This rate varies. |
| Demo fill | 1.08500 | The demo fills at the exact price requested. No slippage. |
| Live fill | 1.08513 | The live price moved 1.3 pips before the order filled. |
| Cost of the difference | KSh 1,690 | 1.3 pips x KSh 1,300 per pip = KSh 1,690. This is the extra cost on the live account. |
The broker may round the fill to the nearest pip, charge a commission, or widen the spread. These add to the cost and vary between brokers.
Doing it once, step by step
Work through these steps once, in order, with a pen and the numbers from this lesson. Each step uses the same EUR/USD price and the same exchange rate, so the results build on each other.
- 01
Write down the pip value
Start with one standard lot of EUR/USD and an exchange rate of KSh 130 to the dollar. One pip is 10 USD, so 10 x 130 = KSh 1,300 per pip. Keep this figure for the rest of the walkthrough.
- 02
Price the demo trade
Assume the demo fills you at 1.0850 on one standard lot. If the trade gains 20 pips, the profit is 20 x KSh 1,300 = KSh 26,000. Write that number down as the demo result.
- 03
Add the slippage
Assume the live fill is 2 pips worse, at 1.0852. The slippage cost is 2 x KSh 1,300 = KSh 2,600. Subtract it from the demo result of KSh 26,000 to get KSh 23,400.
- 04
Subtract the spread and commission
The spread and any commission vary between brokers, so use your own broker's figures. Take them off the KSh 23,400 to reach the amount before tax. Do not guess these numbers; read them from the broker's schedule.
- 05
Compare the two results side by side
Place the demo result and the live result next to each other. The difference is the cost of the fill and the costs of the account. That difference is what the demo could not show you.
- 06
Repeat with a smaller lot
Run the same steps on a micro lot, where one pip is KSh 13. The arithmetic is identical, but the amounts are small enough that a first real loss is a lesson rather than a setback.
The mistake most people make here
The common mistake is to treat a demo account as proof that a strategy works. On a demo, every order fills at the price you see, instantly. In a fast market, the price can move before your order reaches the broker, so you get a worse price. The demo also cannot teach you how it feels to watch real money fall in value. Use the demo to learn the platform and to check your arithmetic. Then move to a live account with the smallest size your broker allows, so the first real loss is small enough to learn from.Check yourself
On EUR/USD, one pip on one standard lot is 10 USD. If the exchange rate is KSh 130 to the dollar, what is one pip worth in KSh?
10 USD x KSh 130 = KSh 1,300.
You place an order on a live account and the fill is 2 pips worse than the price you saw. Using KSh 1,300 per pip, what did the slippage cost you?
2 pips x KSh 1,300 = KSh 2,600.
A demo shows a profit of 20 pips on one standard lot. At KSh 1,300 per pip, what is the profit in KSh before any costs?
20 pips x KSh 1,300 = KSh 26,000.
Questions that come up next
Why does a live order fill at a worse price than the one on my screen?
The price on your screen is the last price the broker showed. By the time your order reaches the broker, that price may be gone. The broker fills you at the first price it can match, which can be higher or lower. In a quiet market the difference is small. In a fast market it can be several pips.
Does slippage always work against me?
No. Slippage can also give you a better price than the one you saw. If the market moves in your favour while your order is travelling, your fill can be above or below your expected level. Most beginners notice the bad fills because they cost money. The good fills are easy to miss.
How do I work out pip value for a lot size other than standard?
Start from one standard lot, where one pip on EUR/USD is 10 USD. Multiply by the exchange rate to get shillings, which is KSh 1,300 at KSh 130 to the dollar. Then divide by ten for a mini lot, giving KSh 130 per pip. Divide by one hundred for a micro lot, giving KSh 13 per pip.
Is a demo account honest about the arithmetic?
Yes. The pip value, the profit and the loss are calculated the same way on a demo and on a live account. The arithmetic does not change when real money is involved. What changes is the fill price and the costs taken out after the trade. A demo is a fair calculator.
Why can a demo not teach me how losing money feels?
On a demo the money is not real, so a loss costs you nothing. On a live account the same loss comes out of your balance. That changes how you watch the screen and how quickly you close a position. No demo can reproduce that feeling, because the money is not yours.
What should I check before I move from a demo to a live account?
Check the spread, the commission and any rounding rules in your broker's terms. These vary between brokers, so no single figure applies to all of them. Then trade the smallest size your broker allows. That keeps the first real loss small enough to learn from.
The words used on this page
- slippage
- The difference between the price you expected and the price your order actually got. It happens when the market moves before your order reaches the broker. Slippage can cost you money or, less often, give you a better price.
- pip
- The smallest standard move in a currency pair. For EUR/USD it is the fourth decimal place, so a move from 1.0850 to 1.0851 is one pip. The value of a pip depends on your lot size.
- standard lot
- A position size of 100,000 units of the base currency. On EUR/USD, one pip on one standard lot is 10 USD. A mini lot is one tenth of this and a micro lot is one hundredth.
- spread
- The gap between the buy price and the sell price on a currency pair. You pay the spread when you open a trade. It is one of the costs a demo account often does not show clearly.
- fill
- The price at which your order is actually completed by the broker. On a demo, the fill is usually the price you saw. On a live account, the fill is the first price the broker can match, which may be different.
- exchange rate
- The rate used to convert one currency into another. In this lesson it is the number of shillings to one dollar, written as KSh 130 to the dollar. The rate changes over time, so the shilling figures here are examples, not fixed values.
What to take away
- A demo teaches the platform and the arithmetic honestly, but it fills every order at the price you see.
- Slippage is the gap between the price you expected and the price you got, and it costs real shillings on a live account.
- Work out the pip value in shillings before you compare any two trades.
- Use the demo to learn the buttons, then start live with the smallest size your broker allows.