What Is Online Paper Trading?

By: John J Callingham

Online paper trading occurs when investors make use of paper credits to engage in live trading on markets such as the foreign exchange markets. These paper credits are mere tokens and are used in place of real money to give the investor a feel on how trading would be like with real money. Many online investment platforms offer investors a demo account, allowing them to engage in online paper trading. Losses and gains are negligible given the fact that the credits used for such trades are merely for simulation purposes.

Yet, the usefulness of online paper trading is aplenty. Novices and veterans of trading can greatly benefit from the use of online paper trading.

- Online Paper Trading Benefits For Beginners

The fact that such trades do not require any real capital outlay means that they would be very much suitable for beginners who are learning the ropes of trading in a particular financial instrument. Online paper trading allows these novices to familiarize themselves with the various features of the real platform. These include the limit and stop loss functions, which are instrumental to a trader's success.

It would also allow beginners in the world of trading to develop healthy habits necessary for success in investing such as finding out more about the factors affecting currency movements before hitting the "buy" button. This is critical as most people tend to have the wrong mindset of treating the Forex market like a casino. Yet, in reality, it is these people who would often pay dearly as a result of their folly.

- Online Paper Trading Benefits For Seasoned Traders

For the seasoned trader, online paper trading provides a useful avenue to put untried trading methods to the test. Feel that you have developed a method for greater trading success? Try it out on a demo account.

With paper credits, you only stand to gain as you would be able to evaluate the effectiveness of your strategy from a safe distance, without suffering from horrible losses should things go awry. The fact is, even professional investors make use of online paper trading as a means to refine their trading strategies and develop skills for greater returns on their investments.

- Bringing The Learning Of Paper Trades To Real Trades

In any case, it is important for one to adopt the right mentality in order to derive the most out of online paper trading. It simply would not help if you tell yourself that you are only using "false money" which would allow you to take reckless risks when making a trading decision. The key to investing is to take calculated risks, not reckless risks.

Online paper trading allows you to try out strategies which are based on calculated risk, to enable you to improve the odds of success of the method which you are trading with. Online paper trading will take you further if you are willing to put in that added commitment of constantly evaluating your online paper trades. This would allow you to learn fast, to enable you to develop sophisticated investing strategies over time without risking your neck.

Online paper trading provides a useful tool for investment success. Be it the novice or seasoned trader, the ability to make good use of online paper trading as a learning tool would definitely guarantee you success and high returns in your investments.

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