What Is a Worked Example of a Demo Account?

Direct answer

A worked example of a demo account is a transparent, step-by-step scenario that shows how trades change a simulated balance using agreed assumptions. The goal is to let you independently follow the arithmetic and understand what is stable (the mechanics of account bookkeeping) versus what may vary (market conditions, execution, and provider rules).

Mechanism and definition

A demo account is a practice environment where you place trades and observe account changes, but the funds are simulated. The key mechanics you can typically verify are:

• Position size: how many units are in the trade.
• Entry and exit: the prices used to compute profit or loss.
• Profit/Loss (P/L) calculation: the arithmetic that converts price movement into account currency P/L.
• Margin and equity usage: how margin requirements and floating P/L affect available equity.

To keep a worked example meaningful, you must state assumptions explicitly. For example, specify whether the example uses a simplified formula, whether commissions are ignored, and whether spreads are treated as zero. A demo can differ from live execution because fills, spreads, and costs may not match real market liquidity.

Worked example (with explicit assumptions)

Below is one numerical scenario. It is illustrative and uses simplified assumptions so the math is verifiable.

Assumptions

1. Currency pair: EUR/USD.
2. Account currency: USD.
3. Position: 10,000 EUR (often called 0.10 lot in many platforms, but the example will not rely on that label).
4. Entry price: 1.0800.
5. Exit price: 1.0820.
6. Spread and commission: 0 (ignored).
7. Margin model: simplified so margin affects equity, but we focus on P/L first.

Step 1: Compute price move Price change = 1.0820 − 1.0800 = 0.0020.

Step 2: Convert to P/L in USD (simplified) For EUR/USD, a common simplified relationship is: P/L = (EUR units) × (price change).

So P/L = 10,000 × 0.0020 = $20.

Step 3: Update simulated account balance If your starting demo balance is $1,000, and you close the trade at the exit price, your new balance becomes: $1,000 + $20 = $1,020.

Step 4: Equity and floating P/L concept If the trade were not yet closed, the demo would show floating P/L based on the current price. Equity would then be approximately balance + floating P/L (plus or minus any provider-specific items such as unrealized costs).

This is the stable part you can verify: given the same entry/exit and the same conversion assumption, the resulting arithmetic is consistent.

Verification and limitations (material failure modes)

A worked demo example can explain mechanics, but it can still diverge from real trading. Key limitations and risks to state are:

1. Execution realism: demo fills may be at idealized prices, ignoring slippage. In live markets, fills can be worse than expected.
2. Costs and spreads: some demos effectively simplify spreads or commissions. Even if you know the P/L formula, missing realistic costs changes outcomes.
3. Margin rules differ: providers may apply different margin requirements, hedging logic, or liquidation behavior. A demo may not reproduce live margin edge cases.
4. Price feed differences: demos may use different liquidity models or pricing sources, so the path of prices (and therefore the sequence of floating P/L) can differ.

How to verify independently: you can compare your platform’s displayed trade details (entry/exit, units/size, quoted costs, and any margin parameters) to the arithmetic assumptions you wrote down. If the platform uses different definitions (for example, how it computes P/L in your account currency), your worked example must be adjusted.

Next question to check

To make any worked example truly usable, ask what assumptions your platform uses for: (1) position size units, (2) commission/spread treatment, and (3) margin and equity calculation details. If any of these differ from your assumptions, the numeric outcome will not match even if the general concept is the same.