Are you aspiring to trade in the stock market? Have you gathered enough information but are still afraid to make real-time trades? Do you think you are not yet ready to start options trading?
Options trading can fetch you huge profits and also huge losses depending on the strategies one uses. So though many of them know how to trade, they often stop themselves from entering the market as one wrong move can drag all the capital down.
But what if you get to try all your knowledge and make real trades in real time but without real money? This fascinating idea is what we call Paper Trading.
What is Paper Trading?
Paper trading is a simulated trading platform where a trader can buy or sell stocks in real time in the market with the use of virtual money. It is the best platform to practice trading for all aspiring traders.
In a nutshell, paper trading allows the trader to trade without risking actual money in the market. One can easily observe a stock’s price movement in the market, choose potential stocks to trade, apply options trading strategies, and see how it works out. There will be profits and losses but with virtual money. Hence paper trading is also popularly known as Virtual Trading.
Advantages of Paper Trading
1. Eliminates Risk of Capital
There is simply no threat to your money. Paper Trading Apps uses virtual money, so if you are making profits, you make profits in virtual money, and if you make losses, they are also in your virtual money.
Many of them are scared to try out new strategies as they worry about their consequences. However, with paper trading, there is no risk involved at all. As a beginner understanding the dynamics of the market can get really hard. In addition, one might be unaware of how to react to specific market situations. Beginners often panic and withdraw their trades even before they make potential profits.
Capital being at stake can stop you from making any new moves, but your risk is absolutely limited with paper trading. This limit allows a trader to explore the market freely with no potential capital risk.
2. Allows You to Try New Strategies
Have you ever wanted to try something new but refrained from doing it, as you did not know how this would turn out? Well, a paper trading app is the right platform for you if you want to try out new strategies without risk. You can apply a strategy, see how it works, and analyze its pros and cons before applying it in the real market with real money.
Paper trading allows you to test unique strategies and conduct trial and error. This can help prevent mistakes or the application of poor strategies during actual trading.
3. Boosts Practice and Learning
Practice is key to mastery, and mastering the art of trading requires good practice and sufficient foundational knowledge. Paper trading give you access to unlimited educational resources which can be used to understand and learn about the stock market.
One can practice the process of trading, from choosing a stock to executing the stocks at the right time, all without causing a financial disaster. A paper trading app provides the right pre-market foundation, which boosts the confidence of the trader as he enters the real market with real money.
4. Stress-Free Trading
The stock market can be extremely dynamic, and this leads many people to immense stress. The unpredictability and uncertainty of the market have made many investors panic, which has also pushed them to make market blunders.
In real-time trading, everything is at stake. You also need to act within a given deadline, or you will attract huge losses. In a scenario so stressful, investing trading becomes a tedious emotional investment.
But with paper trading, you can cut down on this emotional instability and focus on effective risk management strategies. It allows you to bypass this emotional rush and allows you to think from a much clearer perspective.
5. Enhances Skills
Studying charts, understanding the indicators, and analyzing huge amounts of data come with efficient exposure and practice, which can be attained through paper trading. There are loads of stats a trader needs to decode before choosing the stock, predicting its value, and exercising it. Repeated trading through paper trading apps can help enhance this skill, preparing you to enter the real market with real funds.
Disadvantages of Paper Trading
1. Slippage & Commissions
The real market platform deals with several other costs than just buying a stock. There is a commission fee or brokerage fee, or subscription fee that comes with every trade you make. One can become unaware of such hidden costs. Most paper trading apps do not account for such underlying costs through virtual funds. Hence, choosing the right platform and being aware of such underlying costs is necessary as they affect your profit and loss.
2. Exposure to Emotional Reality
Though paper trading has reduced the stress and allowed you to focus on your trade practices, one is not prepared to deal with the actual stress. As mentioned earlier, many make several market blunders only because they fail to handle their stress during dynamic market situations. One needs to know how to handle the emotions that come along with trading.