Paper Trading: How to Practice and Where to Open An Account

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Like most aspects of finance, investing has a learning curve. Unfortunately, the fear of the unknown and the uncertainty about how to get started keeps many people from investing.

Paper trading provides a simple solution to these problems. 

With paper trading, you can get the hang of the trading platform, test different assets and develop greater comfort with the market before you start trading with your real money.

What is Paper Trading?

Paper trading is a type of simulated trading that allows investors to practice buying and selling securities before actually investing money.

When you sign up for a paper trading platform, you’ll get a certain amount of virtual money in your account. Then you can invest like you would in a normal trading account, buying and selling stocks and other securities.

Paper trading platforms generally follow the live market, meaning any gains or losses you experience in your virtual account are based on actual gains and losses in the market. 

The difference, of course, is that you’re not working with real money. As a result, you don’t actually realize those gains and losses in real life.

Paper trading is an excellent way to test advanced investing strategies that call for more experience. For example, you might use a paper trading account to trade options, futures, cryptocurrencies and forex.

Paper Trading vs. Live Trading

Paper trading is designed to feel like real investing. These platforms are often close to or identical to a broker’s regular trading account. 

The process of buying and selling securities is similar to the actual process, while the returns in your paper trading portfolio are based on real-life market movement.

That said, there are plenty of aspects of paper trading that are different from live trading. 

When you’re paper trading, you’re aware that you’re investing with virtual money. Consequently, you are unlikely to experience the same emotional roller coasters that can come with investing.

Because emotion often plays a big role in investing, you might find that you trade differently while paper trading than you would with your actual investment portfolio. 

With paper trading, you may take more risks and test strategies that are more advanced than are suitable for your situation simply because you know the potential loss isn’t real.

Best Paper Trading Apps

While most online brokerage firms don’t offer paper trading services, a handful of them allow investors to practice trading strategies with virtual money. 

Here are four of the top paper trading services on the market.

TD Ameritrade thinkorswim’s paperMoney

TD Ameritrade’s paperMoney service is housed on the company’s thinkorswim trading platform. When you sign up, you get $100,000 of virtual money to trade with.

Using paperMoney, you can test out new investing strategies that you aren’t ready to try in the real market. It’s well-suited to learning investing strategies like options, futures and forex.

The platform also has analysis tools. These help you learn not only what happened with your virtual trades, but why certain outcomes occurred. You can even track your profit and loss data.

Best for: People who want a large library of educational resources

Pros

  • Access to TD Ameritrade’s educational resources and charting tools
  • A “do-over” feature to start your virtual portfolio from scratch

Cons

  • Not all types of assets are available to all investors
  • Platform may be too complicated for beginner traders

E*Trade

When you sign up for an E*Trade account, you have access to the company’s Power E*Trade platform. This includes robust charting and analysis tools. 

Power E*Trade even includes a paper trading tool where you can test out new investing strategies.

When you sign up, you’ll get $100,000 to start virtual trading. You can log in at any time to see your positions in your paper trading portfolio. You can also reset your paper trading account to start from scratch.

Best for: Current E*Trade customers

Pros

  • Reset your portfolio at any time
  • Library of educational resources and charting tools

Cons

  • Only available with an existing trading account
  • Paper trading uses delayed data

Tradestation

Tradestation is another service that allows you to practice trading without using real money. 

The company offers some of the most robust options for paper trading, including assets like stocks, bonds, futures, IPOs and cryptocurrency.

Your Tradestation paper trading account gives you access to the company’s historical market databases. This allows you to back-test your trading strategies using historical market data.

Best for: People who want a large variety of assets to virtually trade

Pros

  • Many assets to choose from, including IPOs and cryptocurrency
  • Ability to trade using historical market data

Cons

  • Paper trading is only available with an existing funded account
  • Tradestation may have a steep learning curve for some investors

Webull

Webull’s app includes a paper trading feature that lets users practice their trading strategies with virtual money. 

When you start paper trading, you’ll get $1 million of play money to buy and sell assets like you would in your normal Webull trading account.

One downside of Webull’s paper trading platform is that you can’t trade all the same assets you can with your normal Webull account. For example, Webull doesn’t allow paper trading for options contracts.

Best for: Current Webull customers

Pros

  • $1 million of virtual money
  • Access to Webull’s charting features

Cons

  • Doesn’t allow for the same assets as a normal Webull trading account
  • Only open to those with a verified Webull account

Best Stock Trading Simulators

Some paper trading platforms gamify the process by allowing you to compete against others, either privately or on a public leaderboard. 

Below are some of the top stock trading simulators to compete against other traders.

Investopedia’s Stock Simulator

Investopedia is one of the top sources for investing information, and it also provides a stock market simulator.

When you sign up for Investopedia’s stock market game, you get $100,000 of virtual money to trade with. 

You can submit trades and test different investing strategies. It’s also possible to create and compete in daily challenges to compete against other investors.

As you use the stock market simulator, you can even connect with the 700,000 other people using the platform to interact, share tips and learn from one another.

Best for: People who want to connect with other investors 

Pros

  • Ability to interact with and learn from other investors
  • Daily challenges to compete against other users

Cons

  • Users must join a game
  • Hasn’t been updated

MarketWatch’s Virtual Stock Exchange

MarketWatch’s virtual trading platform allows you to join games where you compete against your friends, coworkers or other platform users.

Games are either private or public, so you can join any of the public games or create your own.

Don’t worry if you don’t have friends who want to join you. There are more than 41,000 games already created for virtual traders to join.

Using MarketWatch’s platform, you can practice advanced trading strategies like margin trading, short selling, options and more. You can also build and monitor watchlists of assets you want to keep an eye on.

Best for: Advanced trading strategies in game form

Pros

  • Advanced trading strategies like margin trading and short selling
  • Ability to discuss trading strategies with other users

Cons

  • Users must join a game 
  • Fewer analysis and charting tools than some competitors

Wealthbase

Wealthbase’s simulated trading platform allows you to play fantasy trading games with your friends by implementing trading strategies for stocks, ETFs and cryptocurrencies.

When you sign up, you’ll get $100,000 of virtual cash to start trading. Then, you can build your virtual portfolio and track the leaderboard to see how your portfolio stacks up against others.

Wealthbase also has featured public games that anyone can join. If you win, you’re eligible for prizes like Amazon gift cards.

Best for: Cryptocurrency trading in game form

Pros

  • Public games with the opportunity to win monetary prizes
  • Cryptocurrency trading

Cons

  • Users must join a game
  • Assets are limited to stocks, ETFs and cryptocurrency

FAQs

If you are on the fence about paper trading, these questions may be able to help.

Does paper trading cost money?

Typically no. Most paper trading platforms don’t require a fee, meaning you can practice investing for free. 

If you come across a platform that requires a paid subscription or signup fee, consider joining one of the services on our list instead.

Is paper trading safe?

Yes. One of the key features of paper trading is that you aren’t using real money. As a result, you aren’t at risk of losing money on your trades. 

You also don’t have to connect your bank account to your paper trading platforms, so there’s no security risk.

Can I make money paper trading?

No. Just like you can’t lose money paper trading, you also can’t make money. All of the trades are virtual and done with fake money. 

The benefit is simply the experience you gain while practicing.

How long should I practice paper trading?

There’s not a set amount of time you should paper trade before you start investing your actually money. 

But, in general, the more advanced the trading strategy that you’re testing is, the more you should practice before moving onto the real thing. 

For example, you might not need much practice before investing in mutual funds or ETFs, but options and futures trading might call for additional practice.

What is the dummy stock market?

The dummy stock market simply refers to the virtual market where you do your paper trading. 

In most cases, the dummy stock market on paper trading platforms follows the real market. The only difference is that you aren’t actually making or losing real money due to the movement of the market.

Summary

For beginner investors, paper trading is a great way to get to know how the stock market works before you dive into real investing. 

Even for experienced investors, paper trading can be a means of testing out advanced trading strategies that you haven’t tried yet.

There are plenty of practice platforms on the market. Some aim to mimic a regular brokerage account as closely as possible, while others gamify investing.

Just remember that while paper trading can teach you some of the logistics and how-tos of investing, it doesn’t replicate the emotions and potential financial losses you’ll face when you actually start investing.