Paper Trading: How You Can Practice Trading Without Losing Any Money

Updated: Dec 9, 2021

The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.


Why should you learn about paper trading options?

If you’ve ever taken a stab at investing, you’ve probably felt the hesitation that comes with diving into the stock market for the first time.


Let’s be honest, we’ve all felt that way.


There’s a lot of risks when it comes to investing.


But don’t you wish there was a way that you could practice trading without losing your money?


Well, lucky for you, there is a way for you to practice trading without risking anything. Kinda like training wheels for the stock market.


And it’s called paper trading.


Paper trading helps you build the confidence you need to start investing with large sums of money.


That’s right, there are online tools you can use today that act as a simulator of the stock market.


Kinda like a video game.


Reasons you should consider taking a stab at paper trading:

  • You’re new to the stock market/trading options and you want to learn how the heck everything works.

  • You’re an experienced trader but you have theories that you want to test.

  • You’re an experienced trader who took a break from trading, and you want to practice before you start trading again.

What exactly is paper trading?

The original name “paper trading” originated from investors who wanted to practice investing in the stock market by writing down their investment plans on a piece of paper. They would then watch the actual stock market and see if their theories were correct.


Today, paper trading is a stock market simulator that mirrors the stock market so investors can practice trading options, stocks, ETFs, crypto currencies and other types of investments.


Theoretically, paper trading options gives investors a space to build their skills and insights.


Paper trading can be a great way for new investors to practice investing in the stock market.

Pros and Cons of Paper trading

Pros

  • Stress-free learning: Benjamin Graham, author of the Intelligent Investor advises that one of the first things you should learn about investing is to keep emotions out. Paper trading gets rid of some of the stress that you would naturally have with real money. You’ll learn how trading works without risking real money. So if you make a mistake, you’ll be gaining knowledge of how to do something correctly instead of losing actual money.

  • Confidence: You’ll get comfortable analyzing data and making complex decisions. Your reward is hypothetical profit and knowledge that you can use for the rest of your life.

  • Experience: Paper trading for a long period of time can give you the experience and statistics to build tactics that work for you in the real market. Since it’s okay to fail, you can find out what works and doesn’t work.

Cons

  • No sense of loss: Losing fake money can be a con as much as it can be a benefit. When it comes time to deal with real money, you may have developed poor habits or you may not have a real grip on how much money you can potentially lose.

  • Possibly misleading information: At the end of the day, market simulators can only be so accurate. Their data mirrors the market as best as they can. But they often don’t reflect the real market at a live time. They may be off by 10-20 minutes. Simulators also don’t always include possible market manager fees included in trades. And if you’re trading options, these extra fees can be the large missing piece of the puzzle when you consider you’re using over 100 shares.


How do I start paper trading options?

Choose a simulator

There are dozens of simulators out there, like:

  • Etrade

  • Thinkorswim by TDAmeritrade

  • Active Trade Pro by Fidelity

  • Warrior Trading

Setup a trading account

After you choose which simulator you want to use, go ahead and create an account so you can start practicing.


Then you can fund the account with practice funds.


For most simulators, it shouldn’t take too long for you to get setup and started.

Focus on learning your new skill

There can be tactics to learning. For example, you’ll want to consider the amount of time you spend using paper trading.


Of course, your end goal is to move onto real trading. So, you’ll want to spend enough time to make yourself comfortable with trading in the real market. But you don’t want to spend months on end with paper trading.


And you’ll want to keep a record of your results. Take notes on your process and theories. So you have documentation of what works and doesn’t work for you.


Some things you can take note of include:

  • Your process for choosing a stock

  • Your entry and exit points

  • How the trade went

  • How long the trade was

  • What you learned from the experience

What Now?

Get your feet wet. Get your foot in the door. Or whatever the saying is to get you started.


Paper trading can be for anyone trading in the stock market whether you’re new or experienced.


It can be a great way for beginners to understand what a transaction looks like. You can use paper trading if you want to learn to trade options, stocks, ETFs, and more.


But to state the obvious, paper trading is different from real trading.


So don’t get tricked into believing that trading large amounts of money is a walk in the park.


At Call to Leap, we teach a conservative investing approach. We are as opposite of “get rich quick” as it gets. That being said, we encourage you to take your time learning about the stock market.


The earlier you get started the better. But we want to provide you with resources and information that make you confident about your investing journey.


In addition to paper trading, you can also check out our coaching program to see how we can help you learn options trading strategies that allow you to profit whether the market goes up or down.