Paper trading is the perfect way to test out a broker's services or new trading strategies. By using virtual funds to buy and sell securities, you can get a feel for the platform and start to develop – or fine-tune – your skills.
So, what is paper trading and how can you start risk-free investing? This simple guide will teach you everything that you need to know!
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Paper trading refers to a simulated platform that allows you to buy and sell stocks with virtual money.
Although there is no actual paper required to do this, since everything is online, the term was coined several decades ago. Back then, traders would practice and record hypothetical trades on paper so they could learn without needing to risk money in the active market.
Technology has allowed online platforms to emerge that do just that. Webull, for example, makes it easy to paper trade by using the live market as a reference – without the commitment of real capital. You can track your trade records, profits and losses, and strategies in one convenient tool.
Should I Try a Paper Trading Account?
Now that you understand what a paper trading account is, you may be wondering whether it is worth trying. Here are some advantages and disadvantages of paper trading so that you can make the best decision for your situation.
Perhaps the biggest benefit of paper trading is that there is absolutely no risk. You are trading with virtual dollars, it doesn’t cost anything, and you can’t lose money!
That means even if your timing is bad or you choose a stock that does not perform, it doesn’t hurt. As such, you can take risks that you may not normally take if you were investing with real funds.
It’s Great Practice
Another reason that beginners can benefit from paper trading is that it is great practice. You can experience all the elements of the market, like buying and selling, accessing the pre-market, and conducting research.
Trading is not something that you can learn overnight, and paper-trading allows you to practice without spending any money.
Develop Your Knowledge Base
Paper trading can also help you develop your knowledge base. Never heard of a stop-loss, market order, or limit order? No problem!
The best way to familiarize yourself with these terms and practices is to do them. Rather than spending money and risking losses to do this, though, paper trading allows you to go through the educational process for free.
Avoid the Stress of the Real Stock Market
It’s no secret that investing in the stock market can be stressful. Paper trading eliminates these emotions so that you can focus on learning the platform, improving your investment strategy, and testing your skills.
Build Your Confidence to Trade with Real Funds
As you leverage the paper trading platform you will build your confidence. There is nothing more exciting than seeing your efforts pay off, and once you are confident enough in your skills you can start trading with real money.
Paper Trading Benefits for Professionals
Paper trading is not just for beginners, though – professionals can benefit from it too!
Test New Strategies
Professionals can use paper trading to test out new investing strategies. Instead of risking their funds on an untested method, they can use a simulation to see if the strategy is worth using.
Explore a New Platform
There is nothing more frustrating for an expert trader than missing out on an opportunity because they couldn’t efficiently navigate the platform. When you download a new trading software, it can take some time to familiarize yourself with the interface and button sequences – so consider paper trading until you get comfortable with completing trades and processing complex orders.
What are the Limitations?
There are limitations to paper trading that are important to address. Here are some of the main disadvantages you should consider:
You Don’t Keep the Gains
One of the main disadvantages to paper trading is that you don’t get to keep any of the money you make. While you can’t lose money either, it can be frustrating to see a huge gain and know that you can’t cash it out.
It Doesn’t Simulate the Emotions Tied to Investing
Since paper trading separates you from emotional reality, it doesn’t always accurately simulate what you would do in a real-world situation. Your emotions can run high when actual money is involved, and you won’t know how you will react until you are in that situation.
Slippage Not Addressed
Paper trading does not address slippage, which is when you get a different price than you expect. This is due to the time that passes between placing the order and execution, and it can change rapidly in the real market.
Market Conditions May Be Delayed
Some paper trading platforms may delay pricing by 15 minutes or an hour, which means you won’t have the same experience compared to using real-time software.
Follow these three easy steps to start paper trading on Webull:
Step 1: Account Opening
Start by opening a brokerage account. All you need to register for paper trading is a verified email address, which you can enter directly onto your mobile device or desktop app when you click Sign Up.
Account Opening on Webull
Step 2: Choose Your Trading Platform
You can trade across multiple platforms on Webull, like mobile, web, or desktop. Once you choose which one you would like to use, open the application, and click sign in.
Step 3: Access your Paper Trading Account
After you log into the Webull mobile app, click on your account in the top right corner, then navigate to paper trading. This will launch your virtual trading dashboard.
Paper Trading Account on Webull
How to Paper Trade
To start paper trading, simply choose your strategy and place orders. Once you feel comfortable with the platform and the trading techniques, you can move on to using real funds!
Choose Your Trading Strategy
The first thing you need to do is choose your strategy. Whether you want to try swing trading, scalping, or day trading is up to you – it all depends on the time you are willing to spend managing your portfolio. The best thing about paper trading is that you can try out as many of these strategies as you’d like, without the risk of losing funds.
Placing Orders
Place an order by selecting Quick Trade on your paper trading dashboard. This will launch a search bar where you can type in the appropriate ticker:
Search on Webull Platform
Choose the stock you would like to review then select Paper Trading at the bottom of the screen. The next view will ask you for the order quantity, type, and more. When you have finished filling out the information, click Paper Trade to complete the order.
Placing Order on Webull Paper Account
Consider Trading with Real Money
Have you found your trading strategy and are starting to build a stable income? If so, it is time to think about switching to real trading!
Summary
Paper trading refers to buying and selling stocks with virtual money. Doing so allows you to practice navigating the trading platform and the stock market, without putting your capital at risk.
It’s perfect for beginners who are trying to get a feel for trading or for experts who are looking to test out a new strategy!
FAQs
Does paper trading require real money?
No – it does not cost anything to engage in paper trading. You will use a virtual currency in a simulated environment that has no trading fees.
Is there a limit on how long you can paper trade?
There are no timelines for how long you can use the platforms – use them for as little or long as you need.
Do I need a verified account to paper trade on Webull?
The only details you must provide to start paper trading on Webull is a verified email.
Can you cash out gains from your paper trading account?
Unfortunately, since paper trading exists in a virtual environment, you cannot cash out gains. However, that means you are also not responsible for any losses.
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Andrey Mastykin is an experienced author, editor, and content strategist who has been with Traders Union since 2020. As an editor, he is meticulous about fact-checking and ensuring the accuracy of all information published on the Traders Union platform. Andrey focuses on educating readers about the potential rewards and risks involved in trading financial markets.
He firmly believes that passive investing is a more suitable strategy for most individuals. Andrey's conservative approach and focus on risk management resonate with many readers, making him a trusted source of financial information.
Also, Andrey is a member of the National Union of Journalists of Ukraine (membership card No. 4574, international certificate UKR4492).
Glory is a professional writer for the Traders Union website with over 5 years of experience in creating content in the areas of NFT, Crypto, Metaverse, Blockchain, or Web3 in general. Over the last couple of years, Glory has also traded on different cryptocurrency and NFT platforms including Binance, Coinbase, Opensea, and others.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).
