20 Jul

What is Paper Trading?

What is Paper Trading?

If you have finally decided to invest in futures, there is no better way to test your intuitions and strategies than to get in there and start trading! This method, while being an invaluable teacher, will also put you at some serious monetary risks. The market will not spare inexperienced traders or untested strategies. There are ways to assess your plans and sharpen your skills on the trading floor without actually losing or making any money. This is called paper trading.

What is paper trading?

Paper trading is trading that happens only on paper. Trading on paper allows you to trade in real time conditions using real market indicators and prices. The only difference is there is no money or actual futures contracts involved, so there is no risk of losing money. It is merely a trading exercise that will let you have ongoing practice to test out your strategies.

How to start paper trading?

When you start paper trading you should have a strategy mapped out. You should have an idea of how much money you would like start with, what kind of commodities you are looking for, the margin and maintenance costs, what price they are trading at and what your stop loss level is. You should be clear about entry and exit. Most important of all, you have to be honest and serious; do it like your money is really at stake. So aversion to risk and return objectives should also be set.

  • Step 1: In a dedicated notebook, write down the total amount of money you would like to start with. This starting balance is only paper, so you can make it whatever you want. Start off with a good amount and keep it round for simplicity of calculation.
  • Step 2: On a sheet of the notebook write down the name of the commodities you would like to invest in and the current market prices next to them. Do not go about rounding off, stick to the exact values.
  • Step 3: Track your investment every day. See your results in each and every day! Of course, don’t forget to calculate taxes and broker fees. In a separate blog post, we’ll share on how you can calculate profit and loss.

This process, though vital to success in the futures market can be a bit tedious. Papertrademe.com is an online paper trading simulator where you can or mock trade exactly like explained above. It will track all the data and runs the numbers for you automatically! We do all the hard work. All you have to do is make the trades! This makes the whole experience much more current, realistic, and realtime. Check out papertradme.com today!

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