What is Online Paper Trading?
Online paper trading involves the use of ‘paper’ or virtual money in your trading account. It is almost identical to live trading, except that your profits (and losses) do not involve any real money at all.
Why Paper Trade?
But why would people wish to trade using ‘fake’ money? After all, isn’t the point of trading to make real money? At first glance, paper trading may seem to be pointless, but I’ll soon explain why paper trading is an essential aspect of every successful trader’s overall trading methodology.
The Point of Paper Trading
Paper trading allows beginner traders to practice entering and exiting into trades, which includes learning how to place stop loss orders as well as orders to take their profits. Without the ability to paper trade, new traders would be paying real cash for all the mistakes that they make when they first start out.
For example, a beginner trader may mistakenly click on the ‘Sell’ button instead of the ‘Buy’ button, causing him to lose hundreds of dollars in only a matter of minutes. With paper trading however, the beginner trader is able to learn from his mistakes without paying any real cash to learn from it. Paper trading is thus a great way for new traders to familiarize themselves with trading in the currency market. Once they have learnt the basics and can be consistently profitable in their paper trading, they can next move on to live trading to reap in real profits.
Paper Trading is not just for Beginners
It should also be known that experienced traders still practice some form of paper trading, even though they are already making a good living in trading with real money. They do this to test out the profitability of new trading strategies and are constantly working to improve and refine them, without having to pay any money to do so.
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Harold Hsu is the owner of ForexSystemProfits.com where he provides premium Forex trading tips and resources.
