Every professional athlete practices before competing. Surgeons practice on simulators before operating. Yet many new traders skip practice and jump straight into risking real money. Paper trading simulators let you test your strategies, learn the mechanics of trading, and build confidence without financial risk.
What is Paper Trading?
Paper trading is simulated trading where you buy and sell securities with fake money. The market data is real, but your trades and profits or losses are virtual. It gets its name from the old practice of writing trades on paper to track hypothetical results.
The purpose of paper trading: Testing strategies in real market conditions, learning platform features, practicing execution, and building the discipline needed for live trading. It is not just for beginners - even experienced traders paper trade new strategies.
Best Paper Trading Platforms
Thinkorswim paperMoney
TD Ameritrade's paperMoney is considered the gold standard for paper trading. You get the full Thinkorswim platform with $100,000 in virtual funds to practice with.
Thinkorswim paperMoney Features
- Full platform access including options chains
- Real-time data and realistic fills
- Practice complex options strategies
- $100,000 virtual account
- No time limit on paper trading
TradingView Paper Trading
TradingView offers built-in paper trading directly from charts. It is simple, integrated, and works with any TradingView account including free tiers.
TradingView Paper Trading Features
- Trade directly from charts
- Works with free accounts
- Simple order entry
- Track P&L and history
- Available on web and mobile
Webull Paper Trading
Webull offers $1 million in virtual funds with their paper trading account. The mobile-first experience makes it easy to practice on the go.
TradeStation Simulated Trading
TradeStation provides simulated trading with realistic market conditions. It is particularly good for testing automated strategies.
Interactive Brokers Paper Trading
IBKR offers paper trading with their Trader Workstation platform. The simulation closely matches their live trading environment, making the transition easier.
How to Paper Trade Effectively
Treat It Like Real Money
The biggest mistake paper traders make is not taking it seriously. If you would not risk $5,000 on a trade with real money, do not do it in paper trading. Use realistic position sizes based on what you would actually trade.
Realistic Position Sizing Example
If your eventual trading account will be $25,000:
- Risk 1-2% per trade ($250-$500)
- Size positions accordingly
- Do not use the full $100,000 paper account
- Limit yourself to $25,000 to simulate reality
Follow Your Trading Plan
Paper trading is where you develop and refine your trading plan. Document your entry criteria, exit rules, and position sizing. Then follow the plan exactly as you would with real money.
Keep Detailed Records
Track every paper trade just like you would real trades. Note your entry reason, the setup, your emotions, and the outcome. This data is valuable for improving your strategy.
Practice During Market Hours
Paper trading after hours or on weekends with delayed data does not give you the same experience as trading live markets. Practice during regular market hours to experience real volatility and price action.
What to Practice in Paper Trading
Order Types
Practice using different order types before you need them with real money:
- Market orders and their slippage
- Limit orders and getting filled
- Stop loss orders
- Stop limit orders
- Trailing stops
- OCO (one-cancels-other) orders
Options Mechanics
If you trade options, paper trading is essential for understanding:
- How spreads work mechanically
- Assignment and exercise
- Rolling positions
- Early assignment risk
- Expiration day behavior
New Strategies
Never trade a new strategy with real money first. Paper trade it for at least 20-30 trades to understand how it performs in different market conditions.
Limitations of Paper Trading
Paper trading is valuable, but it has limitations you should understand:
- No emotional pressure: Real money creates fear and greed that paper trading cannot replicate
- Perfect fills: Simulators often fill orders that would not execute in real markets, especially in illiquid options
- No slippage: Real trading has slippage, especially in fast-moving markets
- Different behavior: Many traders behave differently when real money is at stake
Important: Paper trading profits do not guarantee live trading profits. The psychological difference between fake and real money is significant. Start small when transitioning to live trading.
Transitioning from Paper to Live Trading
- Set profit targets: Paper trade until you are consistently profitable for 2-3 months
- Start very small: Begin live trading with 10% of your intended position size
- Scale gradually: Increase size only after proving consistency with small positions
- Expect different results: Your live performance may differ from paper trading initially
- Continue paper trading: Use it to test new strategies even after going live
Paper Trading Checklist
Before transitioning to live trading, make sure you can answer yes to these questions:
- Have you paper traded for at least 50 trades?
- Are you profitable over the last 30 trades?
- Do you have a written trading plan you follow consistently?
- Can you execute orders quickly and correctly?
- Do you understand the platform features you need?
- Have you practiced your strategy in different market conditions?
Track Your Progress from Paper to Live
Pro Trader Dashboard helps you track your trading journey. Import your paper trades and live trades to see how your performance evolves as you develop your skills.
Summary
Paper trading is an essential step in becoming a successful trader. It lets you learn platform mechanics, test strategies, and build confidence without financial risk. The key is treating it seriously with realistic position sizes and detailed record-keeping. Remember that paper trading success does not guarantee live trading success, so transition carefully and start small when real money is on the line.
Ready to learn more? Check out our guide on trading journal software or learn about backtesting platforms.