Can I Learn to Trade Stocks With Fake Money?

By Jay White

May 15, 2014   •   Fact checked by Dumb Little Man

In the days before stock trading arrived on computers and on the Internet, people who wanted to learn about Wall Street and the world of financial exchanges had to write down their transactions and manage their fictitious account on a notebook or loose sheets of paper. Through this practice, the term “paper trading” was born to describe stock market simulations based on real market data.

These days, there are many providers of paper trading accounts that offer conditions that mirror the real behavior of the different financial exchanges. People who open paper trading accounts are not necessarily newcomers or students of the stock markets; they may be seasoned traders who are testing a new software platforms.

<strong>Paper Trading Accounts Versus Stock Market Simulations</strong>

Computer games that simulate trading in the stock markets have been around since the mid-1980s. The difference between these simulators and paper trading accounts is that games usually feature fictitious components and a storyline to make them entertaining. Modern paper trading, on the other hand, is based on actual, real-time market conditions; the only fictional component is the money invested.

Modern paper trading accounts are not limited to equity securities. Would-be investors can actually trade in the options, futures and foreign currency exchange markets without having to risk a single penny. In the late 20th century, paper trading was only offered to individuals who actually deposited funds with a brokerage; however, that is no longer the case.

<strong>Advantages of Paper Trading and Practice Accounts</strong>

Trading financial instruments affected by real-time market conditions is a wonderful way to learn about Wall Street and the world of international exchanges. Students who engage in paper trading alongside a textbook or as part of their course of study have an unmatched opportunity to learn. University professors who teach finance often complement paper trading with discussion of socioeconomic topics, and they can also introduce stock market simulations to challenge their students to apply learned concepts.

Would-be traders should stick to paper trading accounts until they are able to maintain a certain level of profit. They should wait until they have a modest amount of money to deposit into their live accounts, and these should be ready absorb a loss with these funds.

The only downside of paper trading is that it does not accurately simulate the psychological strain of trading. Losing $10,000 on paper is not the same as losing that much in real life.

Jay White

I started Dumb Little Man many years ago so great authors, writers and bloggers could share their life "hacks" and tips for success with everyone. I hope you find something you like!

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