Never trust anyone who says trading is easy. But what if you could find a way to help you shorten the learning curve?
Good news: That’s exactly what paper trading is.
Look, some of the best traders I know started off in the hole, spending their first months or even years losing money. But thanks to awesome trading technology, you can learn how to trade without losing a dime!
Sound too good to be true? It’s not! Paper trading is how you make trades with no risk.
Does this guarantee future trading success with real money? Of course not. But it’s a great learning tool … and one you can use throughout your trading career.
Let me walk you through how it works…
Table of Contents
- 1 What Is Paper Trading?
- 2 Example of Paper Trading
- 3 Reasons for Paper Trading
- 4 Paper Trade Accounts vs. Live Accounts
- 5 Top Paper Trading Simulators
- 6 How to Choose a Stock Market Simulator
- 7 Paper Trade the Right Way
- 8 Paper Trading: The Final Word
- 9 One Platform. One System. Every Tool
What Is Paper Trading?
Paper trading is simulated trading. It’s a way for anyone to test out trading and see how trades would perform in real time without risking a cent of capital.
You find and research stocks, set entries and stop losses, and choose order types. It’s just like trading with a live account…
But instead of entering trades in the live market, you watch them play out virtually.
And you learn by recording all the details. You could note them in a trading journal or use a spreadsheet. But the easiest way is to use a trading platform with a paper trading feature — like StocksToTrade.
As you follow along with the trade, you make the same decisions you would if you were trading with a real account. So be prepared to decide when to close the trade, when to buy more, and so on.
Paper trading is a no-risk, real-time education in the markets.
Pretty cool, right?
Example of Paper Trading
Let’s look at an example of a paper trade…
AST SpaceMobile, Inc. (NASDAQ: ASTS) just agreed to a deal with SpaceX and jumped in premarket trading. You want a piece of the action…
ASTS traded sideways once the market opened, and because you’re smart and listen to me, you wait for the stock to break premarket highs. A little after 2 p.m., it does just that and begins to soar.
Your time to cash in is now. You place a limit order in your paper trading module at $10.25 per share, snatching up 10,000 shares because … you can!
You see the potential to gain $1 per share and set your sights for $11.25. The stock gets to about $11.50 per share, meaning you left a little on the table…
But you can’t complain. You just made a 10% gain!
Now, since this was a paper trade, you didn’t actually make $10,000. But you got great practice and put some skin in the game, even if it was artificial.
I went a little big on this example, but really, you want to make sure that you’re using realistic stock picks and position sizes for your account and strategy. More on that in a bit.
Reasons for Paper Trading
Here’s how traders of all skill levels can benefit from simulated trading…
Gain Real-Time Experience
When you’re a beginner, you have so much to learn. Just like anything, you need to practice.
You’ll need to balance things like finding your best strategies, scanning trade opportunities, entering orders, managing trades, cutting losses … The list goes on.
Don’t expect to get it all right when you’re starting. That’s unrealistic. And it’s why I tell newbies to paper trade before they fund a live account.
Paper trading allows new traders to learn the ins and outs of watching the stock market and placing orders. They also get screen time, experience, and practice executing a strategy.
It’s a no-risk, high-upside activity. If you’re new, it’s smart to paper trade first.
Test and Master New Strategies and Setups
Maybe you have some experience under your belt and discover a new setup to try. The problem?
You don’t have any stats on how you’ll perform with this strategy.
You could trade the setup and hope for the best … But if you want to trade smarter, why risk the capital?
In this case, many traders do what’s called forward-testing. They trade their normal strategy with real money, while paper trading new setups.
If you’re excited about a new setup, paper trade it until you feel confident that the setup can work for you.
Adapt to a Changing Market
Even the most hardened, experienced traders can — and should — paper trade at times.
Every trader can go through losing streaks. It’s tough on any trader. You can take a hit in your confidence.
It can happen for several reasons, and it’s totally normal. Maybe the market shifts and your setups aren’t working.
If you’re an experienced trader struggling in the current market, it’s smart to step back and paper trade for a while.
Think of yourself like a pro athlete taking time away from competing to practice and ultimately get back to the game.
Paper Trade Accounts vs. Live Accounts
The main benefit of a paper trading account is the ability to test different setups without risking real money.
The road to success in anything includes lots of mistakes. Paper trading allows traders to make those mistakes without hefty losses.
But there’s a drawback … These accounts aren’t real — and that can diminish traders’ needs to manage their emotions.
Yes, there’s value in learning different setups without worrying about blowing up your account.
But emotions can affect decision-making drastically. They can cause you to enter trades you have no business being in and scare you out of trade plans that need more time to work.
When real money’s on the line, your emotions can take hold — fast.
And you can’t grow your capital until you start trading for real.
Top Paper Trading Simulators
Not all platforms offer a paper trading feature, but here’s a list of the top simulators…
Yep, I’m biased. To me, StocksToTrade has the best paper trading platform out there.
For one, it was created by traders for traders with easy-to-read charts and user-friendly tools. It’s all to help you build watchlists and scan for your best trading opportunities.
Our analysis tools work in tandem with our paper-trading program. They use real-time data to help traders like you prepare for live trading.
A common complaint with paper trading is that all trades get filled. But that’s not realistic.
Well, with StocksToTrade you can customize your paper trading account for execution delays or PDT restrictions to mimic real-world challenges.
You can also change commissions settings to simulate trading with different brokers.
TradingView is a charting and analysis platform that can be easy and intuitive for beginners to use. It can also be powerful enough for advanced traders.
Because it’s web-based, the platform is super light. It has a paper trading module so you can learn before you risk real money.
When you’re ready to trade with a live account, you can connect your TradingView account to supported brokers.
TD Ameritrade is a large online brokerage that offers a variety of resources and tools to its members.
Its downloadable trading platform, thinkorswim, is pretty robust and allows users to paper trade the market.
E-Trade is another well-known online brokerage that offers several resources and tools.
Its Power E-Trade platform allows members to practice trading stocks, options, and more without committing real money.
Webull is a U.S.-based discount broker…
Because it’s a newer company, it only covers U.S. stocks and ETFs. It’s limited in resources and support compared to other companies on this list. But it does offer paper trading through its platform.
Tradestation is considered a trading technology leader and attracts casual to seasoned traders.
Its desktop-based platform TradeStation 10 is robust and includes a simulated trading mode.
The downside of TradeStation is that you can’t access the platform unless you have an account, but you can make an account and access its baseline tools with no deposit required.
How to Choose a Stock Market Simulator
Like I said, not all platforms offer paper trading. And not all platforms are equal. Some may be faster or more customizable.
You want to pick one that can bring you as close to the real-world experience as possible. That way, you don’t get caught off guard when you go live.
Check out the StocksToTrade paper trading feature. You can get a 14-day trial for just $7!
Paper Trade the Right Way
Do you see the value in paper trading? Good. Now let’s look at how to do it correctly, so you can get the most benefit from it.
To paper trade, you need a way to record all of the details of the trade.
As mentioned earlier, if you want to keep it basic, you could write everything down in a notebook. Using a spreadsheet is even better. But if you want to get the best experience, we recommend you use a trading platform with a paper trading feature, like StocksToTrade.
There’s no point in fudging data. Be sure to keep accurate, realistic data. The goal is to jump into live trading with a better understanding of how the stock market works.
So try to simulate exactly what you’d do with real money at stake. Follow your trading strategy as closely as you can. And be sure to record all losses, commissions, and costs.
Analyze Your Performance
After you gain some experience, you’ll have a better idea of how your strategy should work. At this point, you’ll probably want to work on refining.
This could mean examining losing trades and looking for ways to cut losses. Or it could mean looking at big winning trades to find consistency.
There are many ways to analyze and improve your trading. Make sure you’re thorough. Look at all the angles and run all the numbers.
Adjust Your Expectations
Remember to keep your paper trading as real as possible. Almost every trader performs worse in the switch to live market trading.
I already mentioned that you have to wrestle with many psychological forces when actual money’s on the line. Using fake money is good practice, but there’s ultimately no risk…
It’s easy to be risky with someone else’s money (or fake money) and not worry about downsides. This can mean great “returns” if you’re a good enough trader.
But you must remember that these gains aren’t real — and that you’ll be trading with smaller money in the real world.
If all things go well, your strategy shows solid potential and you feel confident in your abilities. It’s time to consider trading with real money.
Many traders then start risking small amounts of capital and slowly increase in size.
Review as you go along. Compare your performance with how you did when paper trading the strategy. If there’s a massive difference, it could mean execution issues. Or maybe you weren’t realistic when paper trading.
It’s also possible that the markets changed.
And remember that it’s OK to go back to paper trading for a while.
Paper Trading: The Final Word
You can see how paper trading can be beneficial to developing your trading skills.
But we hope you realize how important it is to keep your goals realistic and maintain a trading journal. Here are just a few things you should track:
- What was your trade thesis?
- Did you set a plan with entries and exits for potential loss and profit?
- Did the trade hit a stop loss?
- Would you have gotten filled at your limit order?
- Would you have seen the setup in time?
It’s a lot of work! Thankfully, with StocksToTrade you can help with our state-of-the-art paper trading feature.
And once you feel comfortable, you can graduate to using real money — and join the SteadyTrade Team for daily guidance on trading!
What do you think about paper trading? Tell us in a comment below!
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