Paper trading or demo trading is a common term in the forex and stocks trading industry.
Paper Trading is a process of practicing stock trading without using real money. The phrase Paper Trade’ comes from an old stock market practice of writing down buying and selling orders of stocks on paper.
Paper trade is realized as having evolved as a result of the fact that investors at the stock exchange market had a great desire to be able to engage in the practice of trading, so they would resort to the usage of paper to record their investments and track the movements of the market. The wide array of trading markets attracts an abundance of traders who are new to the world of grading. Some new traders tend to be those who are seeking long term trades. On the other hand, there are some traders who are seeking to engage in conducting trades that are shorter term. It is noted that all new traders share the common trait of a bit of hesitation, which is comprehensible. As well, they also share the characteristic of being concerned about the possibility of experiencing a loss of money as a result of their trading decisions.
Live trading meaning:
Live trading represents trading the real and financial assets (stocks, forex, options, bonds, commodities, etc.) using a real funded trading account on the live market. In live trading, the trader can make a real profit or real loss unlike demo trading and paper trading where traders trading without using real money.
Though the truth is that there are risks associated with all forms of trading, there are several tools that are offered by brokers in an effort to aid new traders to be able to achieve improvements in regard to their skills in the world of trading. One of the tools that are provided is known as paper trading. But the reality is that you may not hear this term much due to the fact that it is often referred to as trading on a demo account within the context of the online trading world.
Investors have been permitted by stock market simulators to engage in practicing their skills in regard to stock trading during the past recent years. With this being the case, there is no requirement for the usage of money that is real when this trading is done online. As a result, this has empowered investors to be able to conduct a determination concerning how well their trade would have done in a real-live market.
In order to gain easy practice in regard to trading skills and to conduct phases of backtesting pertaining to strategies for the sake of the establishing of whether they are viable, investors now can use modern technologies to provide the right assistance with these issues. Consequently, this means that investors then possess an amazing advantage to see if the strategies that they apply to their trading decisions would have achieved good results during real-time.
Is paper trading free? Yes. You have a lot of trade simulators like Free TradeStation paper trading or if you like to trade currency pairs, commodities, major stocks you can use free Mt4 Demo account platform for free as well.
Another benefit pertaining to the usage of stock market simulators is that they provide the enabling of investors to be able to completely embrace the details and nuances of the platforms of the brokers. This will provide the assurance that the investors will be able to conduct navigation with ease and will be able to gain a good comprehension of the manifold innovative trading orders which are present on the various platforms in the trading world today. They will be more fully exposed to the tools and features of the platforms. This will certainly take the guessing out of what is paper trade.
Nowadays, when stock trading has become easier to do from your own computer, many investors do not opt for brokers and try to do trading on their own. Such newbies who are inexperienced in trading can go for paper trading in which investors keep records of their trading orders and their gain/loss on a paper. Investors can also try stock market simulating tools that help them in learning trading skills and judge the risks that might occur in actual online trading.
Paper trading vs real trading
Paper trading advantages imply trading without risk, good for test investment strategy, high confidence but it also has shortcomings in relation to real trading such as the absence of real risk, miscalculation of brokerage.
Here are paper money vs live trading comparasion
Advantages of paper trading
Trading without risk – In paper trading, real money is not used for trading so there isn’t any chance of losing the money which eliminates the risk. Also, this type of trading is free to do (except you are using a simulator tool and it is not available to free).
Test investment strategy – Using paper trading, any new investor can try their investment strategies and test to see whether they will be successful in the real stock market. It is equally convenient for experienced investors who are trying their luck with a new strategy that hasn’t been used in the real market yet.
Confidence– Paper trading gives confidence to new investors of trying trading in the actual stock market. By practicing buying and selling multiple orders, investors can get themselves familiarised with the working of the market and can understand risk factors which will reduce their fear of trading.
Disadvantages of paper trading
Miscalculation of brokerage –Often, due to high brokerage and commission, the profit margin of orders is reduced. In paper trading, as this method does not involve any commission, an investor might make a mistake of miscalculating the brokerage. But while trading in the real world, it might become costlier for an investor, especially a new one, to buy or sell the stocks.
Absence of real risk– Paper trading does not involve the use of real money which totally reduces the risk of trading and investors tend to process orders very easily without any fear of losing the money. Due to which investors may not get an idea of a real risk that is present in the stock market world.
Fear of overconfidence – As paper trading comes with less risk in terms of using real money, investors might become overconfident if they do well in the simulating environment or if their strategies turn out to be successful. Real market scenarios are harsh, and investors might not be ready for them which will create a problem if anytime they face a loss.
Paper Trade Simulators
There are many useful paper trading simulators are available in the market that can be used by investors to learn the trading. Some of such tools are Investopedia Stock Simulator, the Warrior trading paper trading simulator, wall street survivor.
Stock Market simulators
Investing in the stock markets is risky and a person with no experience can make massive losses due to his ignorance about the stock market or lack of skills. Hence new traders are often told to use a Stock Market simulator to become familiar with the features of a stock market. They can practice buying and selling various stocks without taking any financial risk. Virtual stock trading or paper trading allows the investor to practice investing in the stock market. The virtual money is used to invest in a market that is similar to the real market. Though the simulator is popular among new investors, experienced investors may also use it for testing new investment strategies.
The market simulator is also used for educational purposes. There are many investment strategies that require expertise and technical knowledge of the stock market. Even small mistakes can cause losses to the investor. Hence these investors prefer to use the market simulator to perfect their investment strategies before actually investing real money. Some of these strategies involve creating different positions, leverage, short selling and trading in derivatives. There are many companies like stock brokerage firms that offer simulators to investors like demo accounts for 14 days. There are also tools which simulate online trading
Stock Market simulators types
The financial market and fantasy simulators are the two main types of simulators for the stock market. The simulators of the financial markets are using entries of real stocks, and trading using virtual currency. To ensure that the data is not misused, the simulators use a stock data feed which is delayed by at least 15 minutes. Others produce random data which is similar to real prices. They help the person using the simulator to decide whether the strategy is right. Fantasy simulators use items that would not be normally listed on the exchange, like television shows, sports, betting systems.
Stock Market simulators technology
Stock market games
Games related to the stock market are speculative, and allow players to trade futures, stocks in a simulated or virtual environment. While many investors play these market games to gain experience, some of them play these games for entertainment. The players of these games may compete to find out who is able to predict the trends in the stock market accurately. Some of the games use real stock related data from major stock markets like NASDAQ. The games may also include competitions for fantasy trading. Many prediction games include stock markets. However, in some cases, the simulator could be deceptively easy, and it may create the wrong impression for a person who has no stock trading experience resulting in losses.
Paper trading is a quite useful mechanism for new and experienced investors to educate themselves with the working of the stock market and testing of investment strategies. At the same time, before jumping into the real world of trading, investors should practice enough and be careful of the risks involved in the real stock market.