When you’re just starting your trading career, it’s important to have an opportunity to practice and earn experience in a risk-free environment where you don’t have to worry about losing your money. Lots of online brokers actually offer such opportunities: special paper trading accounts allow you to trade any kinds of assets with virtual money. In this article, we explain how these paper accounts work, how you can use them to improve your trading skills, and what you can do to minimize your risks.
About paper trading
Paper trading refers to trading in simulated environments where you can buy and sell real assets your broker offers, but you don’t have to invest and risk your own money. This is widely considered a great way to learn more about trading and start building your trading career. Paper trading allows you to try different strategies without the fear of making a mistake: after all, any mistake costs you nothing here, so you can really experiment with different assets and trading styles.
Most brokers with paper trading features also allow you to calculate your profits and track progress to better understand which strategies really work and which mistakes you should avoid. Paper trading is a perfect way to develop discipline and work on your psychological reactions, but it’s still not risk-free: this trading method also has several disadvantages that you should always keep in mind. Let’s check out what kind of risk in paper trading you have to take on.
Paper trading risks
Paper trading doesn’t have any common risks associated with trading: you can’t lose your funds, and they can’t get stolen or lost since you trade with completely unreal money in your account. However, there are several specific risks associated with this kind of trading. First of all, the paper market does not represent the real one: it doesn’t have slippage or fees, so it feels different. Second, you get less emotionally involved with virtual money, and that may create a false sense of confidence.
How to get started
If you want to try paper trading, make sure to find a reputable broker with a broad variety of tools and favorable trading conditions. To minimize your risks, always treat your virtual trades like the real ones: have a coherent strategy and find a way to get emotionally active. However, don’t get too attached: it’s just virtual money, after all.