Novice Traders and Paper Trading Accounts
If you are new to trading and want to try it for a little while before you commit any real money to it, one of things you can do is engage in a practice known as "paper trading".
Many novice traders practise stock trading in this way by setting up imaginary accounts with imaginary money, keeping track of their positions to see how they would perform if real funds were being invested.
This might seem like "just playing" but in fact it is not.
Many complex trading strategies can be tested out to see if they would work out in the real world.
In fact, many seasoned and experienced traders will paper trade new strategies in this way before implementing them in the live market.
Paper trading is also valuable for educational purposes.
Of course there is no better way to learn about the stock market than by actually investing in shares and holding a position.
But not everyone can afford to do this.
So the next best thing, if you want to learn about investing, is to create positions on paper and to analyse their performance based on different trading strategies.
If you crash and burn, at least you will be able to go back to square one and start again! In terms of how to get started in paper trading, it can be as simple as picking some stocks based on whatever criteria you want to use, assigning a virtual amount of cash to use and then logging how many shares you have bought and sold and at what price.
You can then keep track of your position, either on paper or on a spreadsheet, setting yourself the same rules as you would if you were actually trading in the physical market with real money, i.
e.
when to take your profits, when to cut your losses, etc.
The important thing when paper trading is to use the same discipline as you would if you were risking your own cash.
Just because this is a practice stock trading account does not mean that you should treat it any differently to if you were investing in the real world.
Once you have been paper trading for a while, you will have a much better understanding not only of how the markets work, but also of your own strengths and weaknesses as a trader, and you will be in a much better position to go in and trade the real markets than if you were going in as a completely novice investor.
Many novice traders practise stock trading in this way by setting up imaginary accounts with imaginary money, keeping track of their positions to see how they would perform if real funds were being invested.
This might seem like "just playing" but in fact it is not.
Many complex trading strategies can be tested out to see if they would work out in the real world.
In fact, many seasoned and experienced traders will paper trade new strategies in this way before implementing them in the live market.
Paper trading is also valuable for educational purposes.
Of course there is no better way to learn about the stock market than by actually investing in shares and holding a position.
But not everyone can afford to do this.
So the next best thing, if you want to learn about investing, is to create positions on paper and to analyse their performance based on different trading strategies.
If you crash and burn, at least you will be able to go back to square one and start again! In terms of how to get started in paper trading, it can be as simple as picking some stocks based on whatever criteria you want to use, assigning a virtual amount of cash to use and then logging how many shares you have bought and sold and at what price.
You can then keep track of your position, either on paper or on a spreadsheet, setting yourself the same rules as you would if you were actually trading in the physical market with real money, i.
e.
when to take your profits, when to cut your losses, etc.
The important thing when paper trading is to use the same discipline as you would if you were risking your own cash.
Just because this is a practice stock trading account does not mean that you should treat it any differently to if you were investing in the real world.
Once you have been paper trading for a while, you will have a much better understanding not only of how the markets work, but also of your own strengths and weaknesses as a trader, and you will be in a much better position to go in and trade the real markets than if you were going in as a completely novice investor.
