Paper trading lets you practice trading with fake money before risking real capital. It is the best way to learn the mechanics, test strategies, and build confidence. Here is everything you need to know about paper trading.
What is Paper Trading?
Paper trading is simulated trading where you make trades using virtual money. Everything works like real trading - you see real prices, place orders, and track your results. But no real money is at risk.
Think of it as flight simulation: Pilots practice in simulators before flying real planes. Traders should practice with paper money before using real money.
Why Paper Trade?
- Learn without losing: Make mistakes with fake money instead of real money
- Test strategies: See if your ideas actually work before committing capital
- Learn your platform: Get comfortable with order types and execution
- Build confidence: Develop your skills without the pressure of real losses
- Track your progress: See your win rate and average gains before going live
How to Paper Trade
1. Choose a Platform
Most brokers offer paper trading accounts. Popular options include:
- TD Ameritrade thinkorswim (PaperMoney)
- Webull (Paper Trading)
- TradingView (Paper Trading)
- Interactive Brokers (Demo Account)
2. Start with Realistic Capital
Use the same amount you would actually trade with. If you plan to start with $5,000, paper trade with $5,000. This keeps things realistic.
3. Trade Like It Is Real
- Follow your rules strictly
- Use proper position sizing
- Set stop losses
- Track every trade
4. Keep a Trading Journal
Write down every trade: why you entered, your plan, and the result. Review your journal weekly to find patterns and improve.
Common Paper Trading Mistakes
- Not taking it seriously: Trading recklessly because it is not real money
- Using unrealistic size: Paper trading with $100,000 when you will start with $5,000
- Ignoring commissions and slippage: Real trading has execution costs
- Moving to real money too soon: Paper trade until you are consistently profitable
- Not tracking results: You cannot improve what you do not measure
When to Move to Real Money
Consider going live when you can check these boxes:
- You have paper traded for at least 2 to 3 months
- You are consistently profitable (not just one good week)
- You can follow your rules without emotion
- You understand your strategy's win rate and average win/loss
- You are comfortable with your broker's platform
The Transition to Real Money
When you start trading real money, expect some differences:
- Emotions will be stronger - losing real money hurts
- Execution may differ slightly from paper
- Start smaller than you think - your first real trades should be minimal
Track Your Paper Trading
Pro Trader Dashboard works with paper trading accounts too. Build good habits from day one.
Summary
Paper trading is essential for beginners. It lets you learn, make mistakes, and test strategies without losing real money. Take it seriously, track your results, and only move to real money when you are consistently profitable. The skills you build in paper trading will carry over to real trading.
Ready to learn a strategy? Check out credit spreads or how to start with $1000.