RETAIL e-FX CLIENT


Dummy accounts


One moot point in the social investment network model is the reliability of so-called ‘dummy accounts’ as a guide for investing, when the user is not risking any real money when pursuing an investment strategy.


Edwin Lefevre’s classic tome Reminiscences of a Stock Operator, first published in 1923, sums up the difficulties such ‘fake’ investors have when actually putting their own money on the line. “It is like the old story of the man who was going to fight a duel the next day,” wrote Lefèvre. His second asked him, “Are you a good shot?” “Well,” said the Duelist, “I can snap the stem of a wineglass at twenty paces,” and he looked modest. “Tat’s all very well,” said the second unimpressed. “But can you snap the stem of the wineglass while the wineglass is pointing a loaded pistol straight at your heart?”


Lemont of Currensee is highly critical of automated trading systems that allow performance to be shown in demo accounts, as he argues this does not provide a


reliable guide. “Tere is a very big difference between pretend money and real money. Why would I close a losing position if it’s not my money. Why wouldn’t I just wait out the draw-down until the market comes back. Whereas with my own money, if I open up a position and it is down 50 pips, I am going to say to myself, I’m done – I can’t lose any more money. But if it’s not my money – just play money. Who cares,” says Lemont.


Nevertheless, networks such as eToro which offer ‘dummy’ accounts are providing new users with a valuable self-educating tool. While users experimenting with such accounts are not prone to the base emotions of fear and greed which can drive financial markets, they will be able to see if a hunch for where currency prices are heading is true or not. Social investing networks also provide customers with tools to educate themselves and inform trading strategies. For example, Tradency offers its users a suite of informative and well-made short videos which introduce the concept of social investing and the advantages of its Mirror Trader offering.


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