1. To learn how the market works before you invest real money

In 2022 we have seen the price of Bitcoin drop from $48K to $20K. That is a 58% drop. If you had invested $1000 at the beginning of the year, you would now only have $420. By using a trading simulator, you can test out your trading strategies against real market data in real time. You can ensure you make consistently profitable trades before you risk any of your real money. Even experienced traders in traditional markets should first use a simulator. Crypto and Bitcoin markets operate 24/7 and are more volatile than traditional markets like the Stock Market. Using a trading simulator will help you get accustomed to these differences without risking any of your own money.

2. To test new trading strategies

Even if you are an experienced Bitcoin trader there are always new trading strategies that you can try. However, experimenting with a new trading strategy can be risky when you test it with real money on a real exchange. Instead, test your new trading strategy on a trading simulator. A good rule of thumb for day traders is to test your strategy for 10 days on the simulator. If you are profitable 7 of the 10 days or more you are ready to move your strategy onto the real exchange. While this rule of thumb does not guarantee you will be profitable on the exchange, at least you will have built up a consistent pattern of making money on the simulator. This is much better than hoping your new strategy will work when you have thousands of dollars on the line.

3. To learn how to trade with leverage

Trading with leverage unlocks huge potential gains for the experienced and skillful trader. However, it can also quickly bankrupt inexperienced (or unlucky) traders. Practice using leverage on a simulator BEFORE you become another trader who lost all their money in a margin call. Note that using leverage is inherently risky and even experienced traders often meet their demise using leverage. Using a simulator is a good way to lower your risk, but there is no way to eliminate the risk of trading with leverage.

See here for an explanation of how leveraged trading works.

4. To learn how to short sell Bitcoin

If all we could do is buy and sell Bitcoin, we would be really bored in a bear market like we have right now in June, 2022. When the price is steadily decreasing, it would be impossible to make money. Luckily, many Bitcoin exchanges allow you to short sell Bitcoin. This means that you profit when Bitcoin decreases in price. However, a short sale is another inherently risky trade type. Your potential loss is unlimited because Bitcoin could rise to a very high price. Therefore, we highly recommend practicing short sales on a trading simulator before you short with real money. Using the simulator cannot guarantee profitability, but by learning and trading in a safe environment with virtual money instead of real money, you will learn faster from your mistakes.

See here for an explanation of how short selling works. The article talks about a short sale in the context of the Stock Market, but the concepts are the same.

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