Using a paper trading account first before trading with real money is critical to a trader’s success in the long term. Paper trading allows you to practice trading in a simulated account without using real money. This helps you gain the necessary practice for trading. Once you’ve become successful in making hundreds of practice trades, then slowly scale your way up trading with real money. Watch our video on the importance of this step before you start trading.
A paper trading account provides a safe, structured environment where would-be investors can teach themselves about investing without risking money. It’s the smartest thing you could do before risking even a penny of your money.
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Paper Trading Account Introduction
Remember, as a kid, when you were trying to learn how to ride a bike? Did you jump on the bike without training wheels and were an instant pro? Nope. I bet it took you lots of practice and bloody knees before those wheels came off.
I want you to think of a simulator as a set of training wheels. More importantly, they’ll help you perfect your game and strategy before the wheels come off and you’re set loose on the trading road.
Without the constant worry of smashing your face on the ground, your mind can practice and perfect your strategy. Your face is left intact, and your pocketbook is safe.
Are you still not convinced? I’ll tell you a little secret: Even the pros use simulators. The best traders all practice with paper trading accounts before putting any of their real money at risk.
There’s no shame in returning to a paper trading account if you’ve experienced a series of losses. Equally important, the pros go back to practice and refine new strategies. Why bother risking your cash on a strategy that might not work?
Paper Trading Account Highlights
- Practice makes perfect…or better.
- The learning curve will be shortened
- Practicing saves your money and avoids unnecessary losses
Simulator Account Saves Your Money
Think you can beat the street? Think again. You’ll be broke without honing your skills in a paper trading account. Luckily, You get “virtual” money so you can practice your trading strategies without going broke.
Got a hot new strategy you know is going to make your bank? With Interactive Brokers, you get $1 million in “pretend” capital to test this strategy without taking on any real risk.
The fringe benefits include clean underwear (you’re not crapping your pants worrying about the trade), a house to live in (your wife didn’t kick you out because you were gambling), retirement savings untouched (see the previous point).
Eventually, what will start to happen is you build confidence; your new strategy is working! Yay. You will also nail down your emotions, removing them from the equation.
Practice your profit and loss-taking strategies. Finally, it takes the stress out of trading. Your main goal is to become an emotionless trading robot.
Qualities of a Great Paper Trading Account
- There’s no one-size-fits-all, but all great stock simulators share a few things.
- They closely mirror the market with real-time data. Not only do you want access to real-time data, but buying and selling stocks in a simulator must feel like the real thing. To help put this in perspective,
- A wide variety of securities available. The simulator you choose must offer the securities you want to trade. What if you want to trade Futures, options, ETFs, or even hold and invest in index funds for 40 years? The simulator you choose needs to match you and your needs.
- Quality of tools and charting. What good is a trading simulator if you can’t do quality charting? Top-of-the-line stock charting tools and indicators are necessary for any (real or fake) trading platform. Beyond even that, it doesn’t hurt to have access to conference calls, news reports, or economic data.
- Backtesting capability. Since day trading relies heavily on the strategy (i.e., bull-flag pullback or dip buy) used for trading, you must be able to backtest them. You must know if your strategy works when the rubber hits the road.
Top Picks for Paper Trading Accounts
- ThinkorSwim by TD Ameritrade
- Trader Workstation (TWS) by Interactive Brokers
- TradeStation
1. Thinkorswim
The Thinkorswim platform contains some of the most advanced trading and charting tools. Furthermore, their advanced platform provides data about the global and US economies from the Fed.
It gives you access to over 400,000 economic data points from 6 continents. Moreover, once you register, you’ll get customizable stock charts to track securities and commodities like gold, oil, and natural gas.
Luckily, you don’t need a brokerage account with TD to sign up for the Thinkorswim platform. All you need to do is register with your email address and download the platform.
2. Trader Workstation (TWS)
Back in early 2016, we started using TWS as a secondary broker. Another experienced trader in our stock market community highly recommended it.
Interactive Brokers’ Desktop TWS is considered among the best trading platforms for advanced traders. What’s more, all of the advanced features of the TWS platform.
Their simulated trading platform offers advanced charting, heat maps, and multileg options orders.
I’m not going to lie; new traders will likely find their platform overwhelming. They will probably find Thinkorswim overwhelming as well.
Luckily, we have a free Interactive Brokers Platform setup course and a Thinkorswim tutorial course to get you started.
3. TradeStation
Another paper trading account veteran is Trade Station. If you didn’t know, TradeStation is a direct access broker with a full-featured trading platform.
On top of this, their platform has won numerous awards and is one of the world’s most trusted brokerages.
What I like about TradeStation is all the bells and whistles it comes with. Not only do you get highly customizable charts and indicators, but you have access to strategy optimization capabilities.
Furthermore, you can access their community forums to exchange ideas with other traders with an account.
Due to its superb strategy testing, those who are systems traders like it. The platform is so popular that even non-brokerage clients buy it. But it’s quite expensive; even the paper trading account will cost you $249.95.
Paper Trading Account Cons
- Unrealistic execution expectations. In the real world, your trades don’t necessarily get filled as fast as they do in a paper trading account.
- You have no skin in the game. The downside is that you may take on more risk than in a real account.
- You don’t get to experience the emotional highs and lows of trading. Because you’re not putting your money on the line, you won’t learn to control the highs and lows of emotion that go along with trading. Throwing \$10,000 on a high-risk penny stock is much easier than buying it with your hard-earned cash.
- You get more capital than you would have access to in real life. As I mentioned above, Interactive Brokers gave me access to one million dollars in capital. How in the world does that “simulate” real life? Moreover, you can hit a magic button to reset your account balance. This does not exist in real life unless you have a money tree in your backyard.
Final Thoughts
I’ll leave you with this: Practice does make perfect. So, open a paper trading account. If you’re an aspiring trader, take as much time as you can paper trading before you jump ship and begin live trading.
Be sure to explore different strategies and new ideas to get comfortable. With time and practice using the simulators, the transition to actual trading in a real brokerage account can become seamless.
With a Bullish Bears membership, you’ll have access to hundreds of strategies for all types of traders. It doesn’t matter if you trade futures, options, or stocks; we have something for you.
Frequently Asked Questions
- ThinkorSwim
- Interactive Brokers
- Trade Station
- Webull
- E*Trade
Paper trading is worth it. The best paper trading account allows you to work out your trading plan and risk.
Charles Schwab bought out TD Ameritrade. However, they kept the Thinkowswim platform, and paper trading is free.
Paper trading doesn't have the same emotions as using real money. So you can't prepare for that. This is why we suggest starting small with real money and then building up your position.
