How to Start Paper Trading?

Introduction

Paper Trading is a great way for beginners to get started in the stock market.  

Traders who do the due diligence of paper trading before jumping into actual trading are much more likely to succeed in real life.

If you’re a beginner at trading, watching this video will save you a lot of hard-earned money and frustration.

What is paper trading?

Paper trading or virtual trading as it is sometimes called is simulated trading that allows you to buy and sell stocks without risking real money.

There are free websites where you can do virtual trading online and can learn a lot, without spending a single rupee.

Trading there is like playing a game. You would be given some insane amount of money- like 1 crore rupees and you’re free to buy or sell shares of any company you like.

Even if you lose the entire money, you can reset the account anytime and start all over again.

Through virtual buying and selling, you will learn a lot about the stocks that are actively traded, the various order types used in trading and other basic rules that every trader must know.

Do some people wonder why it is called “paper trading”? Well, it’s because, in the good old days when people didn’t have internet or great apps like we have today, beginners would do virtual trading by just writing down theirs trades on a piece of paper.

However, thank God that we are in a digital age. We have done a live demo of one such free website called Moneybhai.com

Paper Trading Live Demo: Check Now⇒

There are many benefits of paper trading.

The first and the most obvious benefit is that you don’t have to risk your hard-earned money.

I am always amazed at beginners who directly jump into trading and lose most of their trading capital by making some basic mistakes. All those mistakes could easily have been avoided if they had the patience to do paper trading first. If you want to learn to swim, isn’t it a better idea to get started in a swimming pool rather than an ocean?

The second benefit of paper trading is that you learn much faster and much more effectively than just reading the theory. Our minds are programmed to learn by doing rather than by reading. You can spend several months reading about the stock market but what you can learn in just a few weeks of paper trading can be far more effective. That’s how our minds work. Now, paper trading is not a substitute for theory- it is a bridge between that theory and real-life trading.

The third benefit of paper trading is that you can get great insights into what is working and what is not working. By taking detailed notes at the time of the paper trade, you can look back and analyze which kind of trades worked well for you and which didn’t. This will become your building block for real-life trading.

Now, paper trading is great but it has some limitations

The biggest limitation of paper trading is that there are no emotions involved while playing with virtual money. You don’t experience the fear of losing money nor the greed to take excessive leverage.

These mental handicaps become evident when you start trading with real money. Hence sometimes traders do very well in paper trading but do very poorly in real life.

The second limitation is that some traders develop unrealistic expectations from paper trading. They think, “I made 1 lakh rupees in 1 day here so I can at least make 50k in real life”. What they forget is that they made that 1 lakh rupees with a trading capital of Rs.1 crore. In real life, most of us don’t have more than a few lakh rupees to get started. So, these kinds of unrealistic expectations can harm new traders.

The third issue with paper trading is that traders don’t develop a good understanding of brokerage and other charges. They are so fixated on profits and losses that they ignore the fact that the cost of trading can become the biggest hurdle to be profitable in real life.

My advice

Start with paper trading but don’t spend more than a few weeks on it. Once you get fairly comfortable with the idea of trading, move on to your broker’s platform and start trading with just 1 quantity. That’s it. This will keep your risk minimal but at the same time, start invoking the emotions of greed and fear. This will also help you learn your broker’s platform.

The second is to keep your expectations realistic. The profits you make in paper trading are not going to be the same in real life- at least not in the beginning. So, use paper trading as a stepping stone to real-life trading and nothing more than that.

And last but not the least, keep on learning. Trading is like a marathon, not a sprint. If you try to do too many things too fast, you will get tired and disappointed. So, take it easy and first build a solid foundation before moving forward.

So, I hope you have a good understanding of what paper trading is and what are benefits and limitations that. Now, check out this video where we have done a live demo of a free website where paper trading can be done easily.

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