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An Introduction to Paper Trading

Updated on 2012-10-06 by Guest







Trading financial instruments can be a very lucrative venture – or a potential slaughterhouse for people who don’t know what they’re doing. The market is a place where you can get wiped out in one go; and that’s why there’s a need for newbie traders to learn the techniques of trading without getting exposed to real risks. Paper trading or simulated trading is created for this purpose.


What are the Advantages of Paper Trading?

Paper trading is pretty much like an interactive classroom where you can hone your trading skills using virtual money. New traders learn the ropes on how the market moves, and the relationships that drive a market in a certain direction. Additionally, you can also immerse yourself in learning how to trade a specific asset or market using the software.

Aside from the much needed experience that paper trading affords a trader, it also allows you to test trading strategies to make sure it works in a real trading environment minus the imminent risks of trading.

Suppose you have devised a strategy where you’ve laid out the ideal entry and exit points. You even set a stop-loss in case the trade won’t turn out in your favor. How would you know if the strategy works in a real market? If you have a paper trading account which gives real market data, you can simply test out the strategy and even tweak and evaluate the results to stack odds in your favor. There are even some paper trading accounts which lets you back-test your strategy so that you take advantage of broad historical data for testing the viability of the technique.


Types of Paper Trading Software

Paper trading software are not created equal. There are some software which offers intra-day data while some offers only end of the day data. If you are a long-term investor, end-of-the-day data might be enough; however, day traders would need to have intra-day data feeds. Most software gives delayed market data but there few which gives real-time data feeds. Both would work well for a day trader but if you want to mimic a real trading environment possible, you’d do well with a real-time simulator.


Popular Paper Software Reviews

Most online brokers offer a free demo account upon registration. Below, I cover on what you can expect from popular free trading simulators you can take advantage of online.


TradeMONSTER PaperTRADE

TradeMONSTER offers a paper trading platform that’s browser-based so that you can trade just about anywhere. The software starts you off with $50,000 virtual money in your account. PaperTRADE includes a suite of tools which includes charts, analysis tools, proprietary research as well as adjustTRADE which is very nifty if you are trying out a strategy. Aside from these, the software also includes the innovative spreadMAKER tool which is very helpful when you are involved in options trading. This platform uses real delayed quotes and data feeds from the market.


ThinkorSwim PaperMoney

This paper trading software is TD Ameritrade offering. This is a downloadable platform which starts you off with $100,000virtual money in your account. Remarkable feature included in the software is the comprehensive charting options which boast of oscillators, Fibonaccis, and moving averages. You can even open multiple charts all at once. You can set up alerts that can be sent to your web enabled phone as well as your email. And you can customize your own layouts to suit your preferences.


GCI Demo Account

GCI also offers a free demo account with $50,000 start-up virtual money. Aside from its web-based platform, you can also practice trading using your smartphone. You can practice trading Forex, CFDs, Indices, Commodities, as well as shares with no risk to you. All you’ll be required is to key in your basic information and you can use their software for free.


EZTradingClub

EZTradingClub is another online broker that offers a free paper trading platform. To use their software, you don’t need to open a real account unlike other online brokers. For advanced traders, one particular feature that stands out in this software is that it offers historical data. That means that aside from using the software to practice trading, you can also use it to test strategies using real historical data.


HowtheMarketWorks.com’s Paper Trading Account

This is another online trade simulator which you can use for free. You can create a portfolio of a wide array of underlying assets using virtual money. You can trade Canadian and US stocks or Indices; penny stocks, mutual funds, ETFs and OTCBB stocks. You can even have an interactive learning experience by creating groups and hold trading competitions with other traders.

There is a wide array of choices when it comes to free paper trading account. Aside from honing your trading skills or testing strategies, using an online broker’s free demo account gives you a firsthand experience on the tools available at your disposal once you feel ready to trade using real money.









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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.