What Is Paper Trading?

What Is Paper Trading?

 What's holding you back from investing in stocks? Is it because — like many of us — you're scared of “getting it wrong” and losing your hard-earned cash. Stock investing can be a little nerve-wracking at first, but luckily, some brokerages offer a way for you to get the hang of it before putting any real money on the line. This is called Paper Trading.

Paper trading is also sometimes called virtual trading. It involves practicing placing buy and sell trades without risking a cent. New traders use this service to fine-tune their stock investing strategy before committing their money to a brokerage account.

Paper trading is a type of simulated investing where individuals can test the waters of the market without putting any of their money at risk. Using this service, investors can practice buying and selling stocks. Because it’s all fictitious, paper traders don’t have to worry about losing money, but they also can’t make any money.

What Is the Dummy Stock Market?

A dummy stock market — also known as a virtual stock market or stock market simulator — is simply a trading platform where individuals can engage in paper trading. Dummy markets are typically smartphone apps and websites; some are even offered by major brokerage firms. These stock market simulators usually mimic the performance of the real market, so investors can see how they would have fared if they’d invested in the stock market for real.

Paper Trading vs. Live Trading

Virtual trading platforms can feel just like the real thing. But when you're actually trading, you might find that having your money on the line affects your performance differently. Paper trading can give you a feeling of false security, and when you go to trading stocks live, nerves and emotions might get in the way and influence your trades.

In the old days, we paper traded by writing the details of our pretend trades down in a notebook. Today many stock brokers offer virtual trading apps that allow you to complete paper trades using a simulator that looks and feels just like the real thing.

These virtual trading accounts use real-time information to help you gauge your success. That means you can create and test a trading strategy and practice building a portfolio just as you would once you're trading for real. Since it uses real-time data, the actual performance will be reflected in your results.

Best Paper Trading Apps

A lot of online stock brokers don't offer paper trading to simulate investing. This is a shame because it's a handy way to test-drive a broker before committing any actual money. If you're new to active stock investing and shopping around for a brokerage, whether or not a platform offers, virtual trading might be a consideration worth making. Here are our favorite free paper trading options.

1. TD Ameritrade thinkorswim's paperMoney
2. Webull
3. TradeStation
4. MarketWatch's Virtual Stock Exchange
5. Investopedia's Stock Simulator
6. Wealthbase

Is Paper Trading Free?

One of the biggest selling points of paper trading is that you aren’t putting up any real money. Most paper trading apps are entirely free for users. If you find one that requires a paid membership, it’s worth seeking out a free one instead.

How Long Should I Practice Paper Trading?

There’s no hard and fast rule for how long you should practice paper trading before upgrading to the real thing. It depends largely on your investing goals. If you’re planning to do long-term buy-and-hold investing, paper trading might not be necessary at all. Instead, you can look at robo advisors, index funds, target-date funds and other long-term investment strategies. However, if you’re planning to participate in day trading, options trading and other more advanced strategies, paper trading could be a good use of your time. Practice until you fully understand the investments you’re interested in and feel confident in your abilities to enter the market with real money.

How Do I Start Paper Trading?

Getting started with paper trading is easy. Simply sign up with one of the virtual trading apps. Since you aren’t trading with real money, you won’t have to provide much personal information. Once you’re signed up, the app will provide instructions to start trading.

Can I Make Money Paper Trading?

Paper trading is entirely fictional — you aren’t investing with real money. So while this means you can’t lose money, it also means you can’t see any real gains. All gains you see in your account are simulated