Glossary

Paper Trading

Easy

Paper trading or simulated trading is the practice of using a virtual transactional environment to simulate trading without the use of real capital.

What Is Paper Trading?

Paper trading or simulated trading is the practice of using a virtual transactional environment to simulate trading without the use of real capital. Paper trading can be practiced in several ways through various applications and software, or traditionally by paper-based bookkeeping methods. 

Why Is Paper Trading Used?

Primarily, paper trading is used to evaluate real-life trading processes, expectations, and outcomes without incurring any risk. Moreover, as the trading scenarios are purely hypothetical, they can be applied to any financial instrument, be it indices, forex, stocks, bonds, futures, margin products, or even cryptocurrency.

Novice traders can begin to invest a certain amount of virtual assets and leverage them onto the data provided by the market. This way, they can generate accurate results, test multiple trading strategies, gauge their sentiments, and practice risk management before risking any actual money down.

Possible Drawbacks

The only potential downside for paper trading is unlimited trade capital which can lead to bad trading habits. The other obstacle faced in paper trading is the absence of real outcome-based emotions. Loss is met with relief of evading real penalties and gains bring out FOMO (Fear of missing out). 

However, these problems can be mitigated by limiting the virtual trade balance and maintaining a broader view of trading outcomes. 

Keeping virtual trading scenarios as close to real-world trading is known to achieve the most beneficial results. 

What Are the Best Paper Trading Platforms and Apps?

Paper trading can be practiced in a number of ways depending on the ease of accessibility and replicability of results. It can be done on something as simple as a piece of paper or a complex trading simulation. 

These days, modern trading platforms are preferred for their simplicity and accuracy of the market simulation. Functionally, many of these platforms tend to be similar in a manner that they allow users to choose desired time to place a fake buy or sell order. Then, based on the information of the performance of the financial instrument, gain or loss-based outcomes are presented, similar to actual trade. 

Some of the most commonly used paper trading platforms can be found below:

Think or Swim by TD Ameritrade

Heralded by industry professionals and trading novices alike, Think or Swim by TD Ameritrade provides a platform for paper trading. It is available to use via a website or the official app. TD Ameritrade offers the basic version of the platform for free. However, a funded account can give access to additional features. 

Functionality and a user-friendly interface make Think or Swim a popular choice in the trading community. Aside from standard paper trading, Think or Swim contains perks like historical trades. It allows its users to travel back in time, as far as 2008, and perform simulated trades as those price movements are happening in the present.

TradingView

TradingView provides an in-depth and detailed look into paper trading with customizable charts, detailed metrics, and functional projections. While the interface can be overwhelming for rookies, its charting options make it a go-to platform for day traders.

TradingView is particularly desirable for its options day trading, offering stocks, forex, and cryptocurrency pairs.

Jstock

Easily one of the most popular platforms, Jstock takes a more relaxed approach to its design. By keeping a minimalistic interface and a legible overview, Jstock provides simplicity and ease for beginners. However, while lacking in certain areas, this is a solid option and is worth considering for its user-friendliness and operability. 

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