Stock paper trading is the process by which individuals practice stock trading by making trades on an imaginary account with no risk of actual money loss. The service is usually offered online, either for a small fee or for free, by investment firms or other independent websites devoted to the service. As there is no real risk involved, investors should feel free to attempt techniques and strategies with stock paper trading that they may wish to implement in actuality down the road. They should also pay close attention to how the market works and attempt to be realistic with their trades to get the most benefit from practice trading.
Investing in the stock market can be an intimidating prospect for someone who has never attempted it before. Knowing which stocks to buy, when to buy them, and when to sell them is something that can usually be achieved only through experience. Making actual trades can be a costly way to gain that experience. For that reason, stock paper trading can be a useful tool to gain stock expertise when done properly.
Choosing the right website to do stock paper trading is the first step. If paper trading is meant to be a prelude to actual investing, then it's wise to choose an actual investment firm that offers the service. Not only can an investor gain trading experience in this way, but he can also get used to the site's operation so that he'll be comfortable with it once he decides to make actual trades.
Once the site is chosen, a potential investor should try to look at her imaginary account as if it represented her actual investment account. For example, an individual who has only $1,000 US Dollars (USD) at her disposal for actual investment shouldn't fill her simulated account with $500,000 USD. That defeats the purpose of stock paper trading, which is to give investors a sense of what they'll actually be doing once the real trading starts.
Sometimes investors who have actual accounts stocked with real capital can also benefit from stock paper trading. For such investors, the best way to use paper trading is as a testing ground for strategies different from the ones they're actually executing on their real accounts. Attempting trades that might be different from their usual moves can shed some light on possibilities they're not currently exploring. As there is no money to lose, these simulated strategies should also be a bit riskier than the investor's normal trades so that he can see if such risk would actually be rewarded with greater profits.
