Most successful stock traders didn’t roll out of bed one day and start winning in the stock market. Instead, most of them practiced for a long time before they became successful. Many of them lost quite a bit of money learning the ropes of the stock market.
To avoid losing money while learning, many professional stock traders learn how to trade with paper trading. This is a type of virtual trading where everything is done on paper instead of actually turning the orders in.
Thanks to advancements in technology, it is now possible to do online paper trading so that it’s much easier to keep up with.
How It Works
The basic idea behind paper trading is pretty simple. A trader signs up for an account with a paper trading service. Then he is given a certain amount of virtual credit to trade with. This is like getting “Monopoly money” to trade the stock market with. The trader then researches and tries to select stocks that will go up in value.
He places a virtual order, and then the number of shares that he ordered are placed into his account. At that point, the shares grow or decline in value relative to what actually happens in the market.
When the trader decides to “sell” his shares, then the gain or loss is actually realized. This way, the trader can virtually trade the market to see just how successful his trading strategies would have been using real money.
Benefits
One of the major benefits of using this method of trading is that it allows traders to gain valuable experience without risking any of their own capital. In many cases, it takes months or years to be able to understand the nuances of the stock market.
It takes even longer to develop a successful trading strategy for the average trader. Instead of using real capital to learn these tough lessons, the trader can simply do it with paper trading.
In some cases, participating in online paper trading can even provide an opportunity to win real prizes and cash. Some of the most popular paper trading services out there offer prizes to the top traders who participate.
They regularly have contests, and other events to see who the best paper traders are in the market. This makes it possible to get something without actually investing any real money into the stock market.
Another benefit of using this type of trading strategy is that it can be done for as long as it takes to get the trader comfortable in the market. The trader can continue trading with a paper trading strategy for months or years until he comes up with money to actually invest.
Even after a trader starts to trade with real money, he can still do paper trading on the side to test out new strategies. If a paper trading service is limited to certain amount time, a trader could potentially go back and forth between different paper trading services to keep doing it again and again.
Considerations
Getting involved in online paper trading is one of the best tools available for learning how to trade in the stock market. Instead of just jumping into the market with the guys on Wall Street, it makes sense to do a little bit of virtual trading first.