Paper Trading – Old Concept New Practice
Not everyone is an investment guru, but everybody can invest in different investment vehicles provided by various trading platforms online. You can trade online currencies, stocks, commodities and derivatives among others. However, before you get into the actual trading you need to have background information about how the market works and how to get in and trade successfully making money according to your trading plan and minimizing your risk exposure.
Before computers started being used in trading stocks, traders used to learn how to trade on the floor by using a pen and a paper. This is what came to be known as paper trading. A new trader would take time to study the price movements of the various stocks listed on the stock exchange by writing them on a paper and tracking them daily. The learners would also assume on paper that they had either bought or sold the stocks at different prices based on their analyses of the market.
They would then analyze the results from their paper trading and determine how much money they would have made or lost had they been actually trading using real money. The lessons learnt would be implemented in another round of paper trading until the newbies were comfortable that they had learnt the tricks of the market and they could now start trading successfully with real money.
The concept of learning first before engaging in real money trading has not changed yet even in our computer generation today. The only difference between now and the past is that we have digitized the process and instead of learning through paper trading, we use demo accounts.
Demo accounts are simply a replica of the actual online trading platforms for different investment instruments including currencies, stocks, derivatives and commodities among others. Just like with paper trading, the new trader who wants to get into whichever market of their choice must first learn the intricacies of the market in order to be a successful trader.
To begin with new traders should open an account namely a demo account from which they can start familiarizing themselves with the trading platform. Nowadays all good trading companies offer both a demo account and a real account requiring the depositing of funds, with new traders given full access to real time market information so that they can start learning how to use the information in making buy or sell decisions.
With the high adoption of technology across the world and high internet penetration, virtually anyone can have access to demo account and learn how to trade online within a market of their choice. The limitation however comes in terms of the time period allowed for demo accounts by different platforms. With some trading companies like Avatrade giving a practice window of only 2 weeks, some people especially those who are busy in other occupations may not have enough time to learn all that they need to learn before engaging in the actual trading using real money.
Nevertheless, learning how to trade using demo accounts has a lot of advantages and anyone who would like to venture into trading on any online platform should first trade on a demo account. First, the demo account allows you to learn and practice all the trading strategies without putting any money at risk. With virtual money, you are free to make mistakes as you learn. In addition, demo accounts enable you to learn how the platform works and give you all the tutorials you need for you to be very effective when using the real user interface and trading with real money.
On the flip side of it, demo accounts are just what they are; demo accounts. Many learners tend to be not very serious when trading using demo accounts since at the back of their heads they know that the accounts are not real and there is no actual money involved. The disadvantage of this perception is that the learner never gets to pay attention to important details and that might cost them a lot of money when trading using real money. Demo accounts do not subject the learner to the emotional ups and downs that come with trading using real money and seeing it rise and fall randomly as the market prices fluctuate. In addition, the fact that prices on a demo account are provided on a delayed feed makes them less perfect compared to the real trading accounts where the data is real-time.
The disadvantages notwithstanding, demo accounts are the best bet for beginners who would like to engage in online trading on any platform. The lessons learnt will help you avoid mistakes that newbies do while trading which could cost you a lot of money within a very short period of time. However, the learning process on the demo account should be hastened and quickly transition into real trading where the actual game begins.