Paper Trading

November 21, 2023 - Around 4 mins mins to read

What Is Paper Trading?

Paper trading, also known as simulated trading, refers to the practice of using a virtual transactional environment to simulate trading without using real capital. This can be done through various applications and software, or through traditional paper-based bookkeeping methods.

Why Is Paper Trading Used?

Paper trading is primarily used to evaluate real-life trading processes, expectations, and outcomes without taking any financial risks. It allows traders to apply hypothetical trading scenarios to any financial instrument, such as indices, forex, stocks, bonds, futures, margin products, or even cryptocurrency.

For novice traders, paper trading provides an opportunity to invest virtual assets and test multiple trading strategies, gauge market sentiments, and practice risk management before risking real money.

Possible Drawbacks

One potential drawback of paper trading is the unlimited trade capital, which can lead to the development of bad trading habits. Another challenge is the absence of real outcome-based emotions. Losses are met with relief of avoiding real penalties, while gains can trigger FOMO (Fear of Missing Out).

However, these problems can be mitigated by limiting the virtual trade balance and maintaining a broader view of trading outcomes.

It is important to keep virtual trading scenarios as close to real-world trading as possible to achieve the most beneficial results.

What Are the Best Paper Trading Platforms and Apps?

Paper trading can be practiced in various ways, depending on accessibility and replicability of results. It can be as simple as using a piece of paper or as complex as a trading simulation.

Modern trading platforms are preferred for their simplicity and accuracy in simulating the market. These platforms allow users to choose a desired time to place a fake buy or sell order and present gain or loss-based outcomes based on the performance of the financial instrument, similar to actual trading.

Some of the most commonly used paper trading platforms include:

Think or Swim by TD Ameritrade

Think or Swim by TD Ameritrade is a highly regarded platform for paper trading. It can be accessed through a website or the official app. The basic version of the platform is available for free, but additional features can be accessed with a funded account.

Think or Swim is popular in the trading community due to its functionality and user-friendly interface. In addition to standard paper trading, it offers features like historical trades, allowing users to perform simulated trades as price movements are happening in the present, going as far back as 2008.

TradingView

TradingView provides a comprehensive look into paper trading with customizable charts, detailed metrics, and functional projections. While the interface may be overwhelming for beginners, its charting options make it a go-to platform for day traders.

TradingView is particularly desirable for options day trading, offering stocks, forex, and cryptocurrency pairs.

Jstock

Jstock takes a more relaxed approach to its design, making it one of the most popular platforms. It offers a minimalistic interface and a legible overview, providing simplicity and ease for beginners. While it may lack certain features, it is a solid option known for its user-friendliness and operability.

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