What is paper trading? It's trading without real money - trading only on the paper. And without money means without real risk of losing real money. As pilots are learning to fly first on the simulator so should do traders (to simulate trade). On simulators pilots don't risk loss of their life or destroying plane (and traders losing money). But they are improving their skills. I hope that this analogy can help you better understand reasons and benefits of paper trading.
I think and recommend that before putting real money into real trades beginners should first test their skills on the paper. With paper trading you can test your strategy without risking losing money. The factor that you are not using real money can have big impact on trading psychology - you are not under preasure of losing money and you can make more rational decisions without being influenced by emotions. By the time your trading skills are getting better and you gain confidence in your trading actions. When your skills will be on desired level you can then start real trading with real money.
As a good example of trading or investing simulator in my opinion I would like to recommend Investopedia Simulator that I personally use. It offers a lot of features, real data and a lot of informations mainly about stocks.
As I said before with paper trading you can trade without risk of losing money and still you can gain skills and experience. That's the main point of paper trading as I see it.
2 comments:
Wow. I would love to try that simulator to enhance my trading skills and to better understand all the options before trading with real money. I liked your approach of gaining expertise in paper trading to attain skills and experience.
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