What is PaperTrading?
Paper trading is a way to practice different investment strategies without risking real money. Before the advent of the Internet, traders/investors used to record their practice trades in paper on a notebook. These dinosaurs would check the daily Wall Street Journal and then pull out the calculator or slide rule to see how they did. As the Internet and investor friendly websites and applications evolved, the name stayed the same but the methods improved with it.
There are a number of ways to paper trade. One method has spreadsheets replacing a notebook. If you want to go this route, you can design your own spreadsheets to fit your various needs or borrow any number of the investing spreadsheets that are available online. While this is an improvement, the best ways to do it are through specific websites, some of which even have dedicated mobile, tablet, or PC applications.
For a list of the paper trading websites and applications that we’ve found, please visit the PaperTrading Resources section.
The typical paper trading platform gives you around $100,000 in “play” money. This money is marginable, allowing you to have $200,000 in buying power. The best paper trading platforms allow you to do all the usual types of trading, including stocks, options, futures, and some even allow forex trading.
I’ve found that the best are affiliated with an actual brokerage company. These types allow you to place the practice trades on the exact same interface you’d be doing with real money. In fact, you can use the same computer program and mobile applications.
Some allow you access to powerful backtesting tools to see how your strategies would have performed not only currently but also in the past.
Others have a social aspect to them. These allow you to challenge your friends and compete to see who does the best. The more social ones are typically not brokerage affiliated but have a simple website or maybe a mobile application, if you’re lucky. These are likely geared for middle school or high school finance classes or clubs. For the serious investor who wants to practice his trading, I’d recommend sticking with a brokerage affiliated offering.
Remember, it is much different trading with fake money. It is easier to do risky trades because no actual money is on the line. I’d advise trying trades that you’d be able to do with the available buying power in your account. It is MUCH different trading with real money. Emotions are tough to simulate on any paper trading system.
While paper trading is a good way to get started and maybe even compare various brokerage companies products, the best way to do it is to start small in your own account with real money.
It’s always great to choose a broker that has the option to start trading with a demo account. It’s a nice way to learn how to use a new platform or a new strategy.
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Very informative post !!
Thanks for sharing this post here with us.
Thanks for sharing the informative post. The way you narrated the post is good and understandable. After reading this post I learned some new things about paper trading. Keep posting. Please let me know for the upcoming posts.
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