The Case for Paper Trading

Why should you paper trade? Of course, using a site with many valuable support features will invariably help everyone, but why not go directly to real-time trading? Even if you agree that paper trading makes sense, why not paper trade on a brokerage site? Because some online services offer modeling features to one degree or another, some might think it makes sense to simply paper trade where they will eventually trade with real money.

Smart Investor Tip

Using a nonbrokerage paper-trading site is a good form of discipline.
It keeps you from the temptation to enter real-money trades before you are ready.

The reasons to paper trade as a first step, apart from a brokerage account, include:There are three types of web sites offering paper trading:
  1. Free paper trading on sites selling other products. A site that offers more than mere paper trading is valuable because it lends support to your trading activity, especially if good learning tools are included. Some sites offering paper trading also promote products they are selling. There is nothing wrong with selling products online and, in fact, many marketing sites view free services like paper trading, quotations, and articles as good inducements for traders to visit.
  2. Subscription sites for options traders. Other sites specialize in paper trading but also offer valuable services as a specific options-related educational service. Many options traders will be willing to pay for paper-trading services because the value in these added services is worth the money.
  3. Options sites providing paper trading and many other services. A third type of site offers paper trading as well as many other support services, tutorials and articles, and links to education. Because such a site (see the CBOE in the next section) is aimed specifically at options trading, it is informative and full of valuable resources.
By Michael C. Thomsett
Michael Thomsett is a British-born American author who has written over 75 books covering investing, business and real estate topics.

Copyrighted 2016. Content published with author's permission.

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