Dive Into Markets Or Paper Trading First?


Simpler Trading Team

Mar 16th 2022  .  4 min read

Paper trading – or simulated trading – has been a common standard for those just wading into the markets and learning to trade.

There are pros and cons to paper trading to start developing skills and strategies.

(Check out the video, above, for insight into trading this changing market.)

Pick a platform to start paper trading

Trading today requires selecting and learning a computer trading platform.

Trading platforms – such as thinkorswim®, TradeStation or tastytrade – can be complex to new users, but all have a simulated trading environment (digital paper trading) designed to help new users.

Learning the basics of entering and exiting trades while using the trading simulator gives traders confidence and skill when their actual money is on the line. Trading platforms can give traders a chance to mitigate risk and avoid sudden or emotional decisions. 

Making an incorrect trade could have an unintended consequence – a loss – and paper trading means your money is not at risk despite the mistake. A trader who is new to a platform should avoid learning where to click in a platform at the same time they are making an actual trade.

Pros of paper trading

Even experienced traders may be unsure about a new strategy, and the trading simulator allows for practice without risk. Having the ability to test an unfamiliar strategy – such as buying an unbalanced butterfly – offers an advantage when the time comes to trade in real-time.

Simulated trading on the platform can allow traders to learn, not only strategy, but the user interface of the platform itself. Making the jump to real trading can be a smoother transition for traders who set aside time to study the basics.

Experienced traders at Simpler Trading have shared how paper trading was instrumental to their growth. The added screen time allowed them to learn strategy, sizing, and risk management before putting hard-earned money on the line.

The learning process of paper trading is more mechanical rather than mental, and can be considered a better learning environment.

Cons of paper trading

Some traders contend that paper trading is unnecessary and possibly even an incorrect means of learning to trade. They claim the negatives of paper trading outweigh the benefits.

Those against paper trading argue that the process omits self discipline – possibly the most important aspect of trading. You can plug any amount into the simulated trading account and trade away – no emotion is tied to wins or losses.

By contrast, controlling emotions when real money is at stake takes the trading environment to a different level. The risk is real with an active account.

Paper trading doesn’t have the live element of trading which can make the difference between practice and real trading significant. Think of it like learning to swim on dry land – the results would be drastically different than one who learns in the water.

Live-trading can be stressful, fast-moving, and chaotic. Traders who learned by paper trading have conditioned themselves to thrive in a low-stress environment. That’s not reality when the market opening bell sounds each session.

If starting with actual money on the line, learning the trading platform and testing strategy can (and should be) accomplished with small, inexpensive trades where traders risk only a small amount. Traders must learn quickly that they must be willing to lose any amount of money they place in a trade. The risk is real, and traders who learn by paper trading have a tendency to develop a habit of risking larger sums.

Another argument for trading with money from the start is that traders test themselves and their strategies under the higher stresses of the market. These are the conditions in which traders will always find themselves when navigating the market.

For or against paper trading?

Traders need to prepare themselves for a high-stress environment as much as possible.

This means that even traders who learn by paper trading should transition as quickly as possible to the live-trading sessions.

Whether you’re for or against paper trading is a personal decision. The goal is to learn to trade with a sound foundation of using the trading platform you choose and applying new skills in live-trading sessions.

Whichever method a trader chooses, they must prepare to always be developing the mental and emotional maturity essential for trading.