What is Paper Trading – How to Start and Apps in India
Paper trading is a method of practising trading and testing investment strategies in a simulated virtual environment, allowing investors to experience various real-life market conditions and phenomena. It is mostly used for educational purposes. And, the main difference between paper trading and real trading is that no actual money is put at risk in paper trading.
This blog helps you understand how paper trading works, how to start paper trading, its benefits and limitations and provides a list of paper trading apps in India. Read on!
How Paper Trading Works
If you want to trade stocks on paper, all you need is a pencil and paper and details of the stocks you wish to trade. After you’ve made your trade on paper, you will need to monitor the security’s price movements to understand how much you would have gained or lost had you executed the trade in real-time.
It’s a simple way to analyse how accurate your predictions about a specific security or stock will be.
Nowadays, virtual platforms that work like real-world brokerage enable traders and investors to test their strategies efficiently. Many platforms are free to use; however, some charge a subscription fee.
Online paper trading platforms have delayed security pricing, though some do offer real-time trading.
Beginners can use this method to learn how to buy and sell stocks, while experienced investors can use paper trading to evaluate the profitability of a new strategy. Keep in mind that this virtual environment is not connected to the actual stock market environment and does not affect the real stock market in any way.
How to Start Paper Trading?
Paper trading is a good way to learn how to trade a variety of assets such as stocks, bonds, etc. It also allows investors to test and learn how real-life stock environments work. The most basic way to practise paper trading is by using pen and paper. Below are a few steps you can follow to start paper trading:
- Write down a fixed sum of money, preferably round numbers like Rs.10,000, to create a margin for your investment.
- The next step is to write the name of the stocks you are thinking of investing in. You can choose one stock, but it is advised to choose multiple options.
- Write down current stock prices next to the names of stocks you have chosen.
- Divide your total investment between the different stocks that you have chosen.
- Subtract the nominal fee charged by most brokerage accounts for both stock purchases and sales.
- The last step is to round down the per-investment figure by the actual share price.
- Simply track your investments by checking the stock price after the closing bell every day to see how your investment is performing.
Nowadays, some brokers provide virtual live trading platforms and stock simulator games. You can use any of the best paper trading platforms to start your investment journey.
Paper Trading apps in India
Given the benefits, several online brokers and websites now provide their clients with paper trading accounts. Here are some of the top paper trading apps and websites in India:
- TradingView
- Neostox trading
- MoneyBhai
- ChartMantra
- Sensibull virtual trading
- Dalal Street Investment Journal (Stock Market Challenge trading platform)
- Wall Street Survivor
- Zerodha
- TrakInvest
- MoneyPot
Advantages of Paper Trading
Now that you have become familiar with the concept of paper trading and how it works, let’s take a quick look at some of the benefits it provides to traders and investors.
- Eliminates Risk
Paper trading involves virtual money. And hence, in reality, you do not record a monetary loss. Even with bad decisions and strategies, you lose nothing. Investors and traders can learn how to trade in a relaxed setting, where a wrong decision or strategy will not result in a financial loss. - Eliminates Stress
As no risk is involved, paper trading eliminates stress. No risk factor allows you to practise and learn at your own pace without fear.
Trading invokes two kinds of emotion in an investor –greed and fear. This blinds participants to critical information required for effective risk management in volatile market conditions. Paper trading avoids this emotional roller coaster, allowing the new participant to concentrate solely on the mathematical process and not the pitfalls. - Allows You to Practise Your Strategies
Paper trading allows you to identify the flaws and mistakes in your strategic and analytical process. Using the paper trading option, an investor can gain experience in every step of the trading process. - Help You Gain More Confidence
Implementing strategies, and investment plans in a simulated environment that results in profits can help new investors gain more confidence. - Help You Plan Your Investment Strategy
Paper trading can help to generate useful statistics about a new strategy and market approach. You can eliminate and change the approach if the new strategy is not yielding results as expected.
Disadvantages of Paper Trading
Paper trading offers many advantages to investors and traders, but it also has some limitations. Below mentioned are a few disadvantages of paper trading:
- No Accounting for Other Costs
While paper trading allows you to practise trading, it doesn’t take other costs, like commission, fees, taxes etc., into account. These expenses can cut down your profit. Sometimes these additional costs can be the difference between profit and loss, and paper trading does not prepare the investors for this. - Emotional Reality
Real-world trading is complex and ruthless. Transactions happen in seconds, and many emotions guide the investor in reality. Paper trading does not prepare the investor for this because it does not invoke real words and emotions. Also, stock markets change direction on many factors, which may not be accounted for in paper trading.
Virtual trade allows you to make more independent and relaxed decisions. However, this may differ in the real world. - Investors Can Get Overconfident
Paper trading can develop overconfidence in inventors.
As there is no risk, investors tend to make decisions that they would not make in the real markets. They could carry this overconfidence when live trading and adversely impact trading results.
Paper Trade vs Real Trade
The following are the differences between paper trade and real trade:
| Paper Trade | Real Trade |
| Paper trading can help investors to learn and execute different trading strategies in a virtual environment without investing real money. | A real trade is where an investor uses actual money to invest or trade in a market. |
| Paper trading carries no risk. | Real-life investing and trading come with a fair amount of risk. |
| You can experiment with various strategies until you develop the expertise to execute trades without fear of losing real money in such transactions. | Actual money is involved in real trade, and there is no time or space to correct mistakes. |
| Investors do not bring real-time sentiments to this type of trading because they are well aware that no real money is involved. | Real trading evokes many emotions like greed, fear and more. |
Final Word
Paper trading has grown in popularity in recent years thanks to the availability of online trading accounts and platforms. These paper trading apps and platforms create a virtual simulated trading environment. It allows you to practise trading and helps you test your trading strategies. However, this type of trading has some limitations as real-life trading is hard and may not be the same as experienced in paper trading.
FAQs
Ans: A demo account is where new or experienced investors can test strategies and learn how trading technology works with fictitious money. Trading in demo accounts is also known as paper trading.
Ans: Fortunately, most online brokers provide paper trading functionality, allowing day traders to practise their skills before investing real money.
Ans: Paper trading can create a false sense of security and frequently leads to distorted investment returns. To put it another way, non-conformity with the real market occurs because paper trading does not involve the risk of real money.
Ans: Paper trading is thought to be beneficial for new traders, but it can benefit anyone; even professionals use it when developing a new strategy. While you may be eager to begin trading with real money, the advantages of paper trading are immeasurable.
Ans: Paper trading allows individuals to practise their trading strategies in real-world scenarios without risking real money. So traders don’t have to worry about losing money.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
