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Paper Trading

What is Paper Trading?

The act of performing a simulated trade without entering the market.

Paper trading is a great training technique that involves trading without risk, that is, no money down. This is done by pretending to do the real thing and watching the outcome. 

Improve your Trading Skills with No Risk

The key to great trading is to practice all your strategies as if you were doing it for real. Without actual money on the line there is nothing to lose, but also nothing to gain except experience and skill. Many share trading platforms allow you to paper trade on training accounts as if you had a real money account. You may need to be inventive elsewhere.

 

Remember the basic law that an asset is only worth what someone is willing to pay for it that day and time. Paper trading can disconnect you from real world conditions. When moving from a simulation to real world trading, start small and keep trades to 2-3% of your balance sheet, that way a loss will only have a small impact.

Paper Trading Does not Always Yield Exact Results

Bare in mind that if you are trading and you are a major influence on the trading environment, then paper trading would be of no benefit. However if your trades are nothing in your chosen market, then paper trading would make no difference to the market and therefore be more accurate. For example, if you are trading collectables amongst your friends, the market is very small and the effect of your trades makes a big difference to the market. While if you are trading small amounts of shares in the share market then your trades will make very little difference, and thus paper trading will return a realistic result.

Further Reading

Paper Trading (wikipedia)