Paper Trading: What You Need to Know
Practice makes perfect. There is a reason we here that ever since we were little. And no matter how much we try to deny it, that saying is true. Just like learning how to ride a bike, you may stumble here and there. However, you always need to get back up and try again or else you’ll end up the rest of your life regretting it. The same can be said about paper trading. It is a way to practice your market trading skills. Although it may not be as great as the real thing, everyone needs a place to start.
But what really is paper trading? Why do you need to do it? And most importantly, how can you start doing paper trades? Well, fear not because all will be explained here in this article. So, ladies and gentlemen, this is paper trading: what you need to know.
What is Paper Trading?
Let us start with the basics. Paper trading is essentially a practice trading. Prospective traders can buy or sell securities without the risk of losing real money. This is a great way for both new and veteran traders as it could be used to learn new strategies from each other. This is a great way you and any prospecting traders who want to give the market a shot. And the best part you don’t have to have a brokerage or anything. You can simply use a spreadsheet or even just a pen-and-paper. Although, if you plan on using this as a way to practice paper trading then I suggest you try another approach.
The good news is that most trading web platforms and online bookers can offer paper trading accounts. Thus giving traders a chance of learning through actual spreadsheets made by actual brokers.
Paper Trading Pros
As was previously mentioned, paper trading is a fantastic way to get your feet wet and learn the ropes of trading. It shortens your learning curve and there is absolutely no risk in participating. Because you don’t use real money, you have the freedom to approach the market however you see fit. Who knows, you might even develop a winning strategy. Above all, it loosens you up for real market trading. You know what they say, knowing is half the battle. Thus learning to trade in practice will help lose the stress and pressure when you start using real money.
You should never trust too much of a good thing. That is what my mum used to say to me. And the same could be said here. Simulated trading also has its shares of flaws.
Although paper trading is great for practice, you still do not get a 100% idea of how the actual markets will play out. Because you don’t use real money, you don’t get the full experience. Thus, not all factors can be calculated in your trading session. One aspect that can never be truly replicated with practice trading is trading psychology, the study of how emotions affect our trading judgment. Always remember that no matter how close it is from the real thing, this is still just a simulation. There is no guarantee you will become a success in the real world just by being successful in the simulated trading world.