From demo to live
Trading on margin can lose you more than you put in. Past results, including backtests, do not predict future results. Cloud9Trader provides tools and education, not financial advice. Read the full risk warning.
Each step towards live trading removes a simplification. Move one step at a time, and only when the step before has held up for long enough to judge.
| Step | Prices | Fills | Money at risk |
|---|---|---|---|
| Backtest | Past prices | Emulated, at the recorded bid and ask | None |
| Demo account | Live prices | Emulated, at the current bid and ask | None |
| Practice account at a broker | Live prices from your broker | Your broker’s simulated fills | None |
| Live account | Live prices from your broker | Real fills, with slippage and costs | Yours |
What changes at each step
Section titled “What changes at each step”- Backtest to demo. The prices are new to your algorithm, so this is a true out-of-sample test. Your algorithm also has to cope with things a backtest smooths over, such as gaps when the market reopens.
- Demo to practice account. Your broker’s own prices, spreads and order rules apply, including its margin rates and minimum sizes.
- Practice to live. Fills can be worse than the price you saw, commission and overnight financing apply, and you are now the one deciding whether to keep going through a losing run. Start small.
A worked example
Section titled “A worked example”An algorithm makes 400 trades a month in its backtest with an average profit of 2 dollars a trade: 800 dollars a month. Live, slippage of a fifth of a pip on 100,000 units costs 2 dollars a trade. The same algorithm now makes nothing. High-frequency strategies feel this most.
In Cloud9Trader
Section titled “In Cloud9Trader”A trading session runs your algorithm against live prices on your account. On the demo account, fills are emulated the same way as in a backtest. A trading session needs a plan that includes trading sessions, even on the demo account.
Before you go live, run the algorithm on the demo account long enough to see a losing run, and compare its results with a backtest of the same period. If they differ a lot, find out why before you add real money.
Read next
Section titled “Read next”- Risk and position sizing: size every trade from its stop loss.
- Get started: start a trading session on the demo account.