Paper Trading App or Platform in India : pros & Cons
When a trader/investor is learning to trade, it is advised not to put their money in the financial market at the beginning itself, but rather, paper trade for some time. This is always a good idea. It might even save the said trader a lot of money in the long run. This brings us to the question- what is paper trading?
What is Paper Trading?
Before an investor starts using their capital to open a position, they need to know how to navigate the financial markets. ‘Paper trading’ is one of the methods they can use to do this. A paper trade is a simulated trade that allows an investor to practice buying and selling without risking real money. In simple terms, it means practicing one’s strategy or whatever it is without the use of real money.
The term dates back to a time when young budding traders would practice on paper before risking money in live markets. While learning, a paper trader records all trades by hand to keep track of hypothetical trading positions, portfolios, and profits or losses. Today, most practice trading involves the use of an electronic stock market simulator, which looks and feels like an actual trading platform.
The development of online trading platforms and software has increased the ease and popularity of paper trading. Today's simulators allow investors to trade live markets without the commitment of actual capital and the process can help to gauge whether investment ideas have merit.
You can speak to us to know the platforms where you can trade without the worry of losing any money. This is by large the most popular virtual trading game for the Indian market.
To get the most benefits from paper trading, an investment decision and the placing of trades should follow real trading practices and objectives. The paper investor should consider the same risk-return objectives, investment constraints, and trading horizon as they would use with a live account. For example, it would make little sense for a risk-averse long-term investor to practice numerous short-term trades like a day trader.
Investors and traders can use simulated trading to familiarize themselves with various order types such as stop-loss, limit orders, and market orders. Charts, quotes, and news feeds are available on many platforms as well.
Paper Trade Accounts vs. Live Accounts
Paper trading may provide a false sense of security and often results in distorted investment returns. In other words, nonconformity with the real market happens because paper trading does not involve the risk of real genuine capital erosion. Also, paper trading allows for basic investment strategies—such as buying low and selling high—which are more challenging to adhere to in real life but are relatively easy to achieve while paper trading.
The fact is that investors and traders are likely to exhibit different emotions and judgment when risking real money, which may lead them to different behaviour when operating a live account
Advantages
Traders don’t have to risk their own money:
The most obvious advantage is that first-time traders don’t have to risk their own capital to get their hands dirty. Now if they don’t have to risk their own money, they can do whatever they want. They can get in thousands of shares or get out of thousands of shares they can put all weird and wacky positions that they have no clue about or just get used to the panels. It’s a good way to familiarise themselves with the stock markets. When they don’t have to risk real cash or real capital it allows them to just experiment with things and just get the hang of things. Not having to risk real money is one of the first advantages of paper trading.
Make trade stress free:
Since no real money is involved, the stress is reduced. They can trade stress-free because there are not risking their own real hard-earned money or capital. Newbie traders can go ahead and play around and dabble around and execute and make trades without that emotion killing them with how going to bed and not being able to sleep so they do not worry about losing any money and because of that their emotions should be nice and level.
There are lots of people out there that when they trade, they trade stressfully. They trade with a lot of stress and baggage. When one paper trades, because it’s not real money they do not have all that weight pulling on them because again it’s not real money.
So, they can trade naturally without worrying about the loss of capital and this allows them to make judgments and decisions clear-minded and also allows them to practice appropriately if they are just getting started in the market.
Get comfortable with the platform:
It does allow one to get comfortable but not only comfortable in their trading it allows an individual to get comfortable with their platform. So, if a person is starting with a new platform and if the tools are a little more confusing it allows them to get comfortable with, it allows them to play around and click on things to see what does what, how things work, how things function to see if they are comfortable with that panel.
Not everyone is going to be as tech-savvy as Bill Gates or Mark Zuckerberg so they are going to need to play around with the panel and get the feel of how things work in a trading platform because it’s a lot different.
Builds confidence:
It allows the trader to build confidence so this one ties into the stress factor. Because they are trading without any stress, it also allows them to build some of that confidence so as they start making some profitable paper trade it gives them a boost of confidence.
The more confident the trader feels about trading, the more clear-minded will they feel and when they’re clear-minded and relaxed, it’s like playing a sport when you relax you’re able to be in the zone, you’re able to trade in the zone and you’re able to make things as good as you normally would trade.
Test trading strategies:
Paper trading allows traders to test strategies systems and see the probability of success. When traders start paper trading options, it allows them to see, if a particular strategy works as well for a real account and if they do, they can go ahead and now add this additional strategy to their actual trading account. They can trade stocks and can trade options then they continue this process as they learn a new strategy or a new technique or new system they can go ahead and add those to the buckets of already successful techniques that they have.
Just starting with one is a great point that’s all a trader needs but if he continues to add and build upon that using paper money and paper trading allows him to see the percentage of success and it allows him to test out those strategies without any risk.
Disadvantages
Market Conditions are not always real-time:
The market conditions are not necessarily always real. Sometimes paper trading is going to be delayed or behind maybe 15 minutes or it’ll be an hour delayed or maybe even one day delayed and even if the trader has real-time with his paper trading account or software or he’s using just pen and paper to record his trades, his still market conditions are not the same because they also affect him.
When they affect a trader, this also impacts his stress, it impacts his emotions so the conditions overall aren’t going to be the same when he is trading paper money as he would be trading with real money. When it comes to real money that stress factor that I talked about earlier in the advantages that his trading without that stress is really important to learn to deal with.
It’s those emotions, it’s learning how to control his emotions and being disciplined in his trade, it’s one of the things that a trader need to learn in trading. Most people aren’t going to be honest with their emotions, with their behaviour.
That is one of the main disadvantages to paper trading is that a trader doesn’t get these real-life situations of learning how to deal with the losses, learning how to deal with the stress or the emotions. It’s not necessarily going to be extremely stressful but one still has to learn how to deal with those emotions of euphoria, over excitement or just happy state of mind or some of those times where those trades don’t work out in his favour and he might have to take a loss. Unfortunately, with fake money, we don’t get that one-to-one relationship or that feeling as much as we would with a real account because when real money is on the line, we’re more connected to it.
Slippage and Commissions:
Sometimes we might get that slippage cost or an additional little cost that we might have to deal with whether it’s having a broker minimum that we have to hit minimum rates or fees within our broker that we might have to pay for and that’s all part of the trading.
As a business, one has to think about all these things and a lot of times with just paper trading it just gives a little narrow view of this and we don’t take into account all the other factors such as minimum training requirements, meaning the minimum amount of trade that we have to do, the commission or the slippage costs so all these little things can come up.
Missing out on profit potential:
Another disadvantage of paper trading is missing out on future profit potential. For example, we entered into an options contract of 120 shares and its price increased by Rs 100, we could have made a profit of Rs12000 and just because we were paper trading, we missed out on the profit. Those missed opportunities or opportunities that we could have hopped onto and made real money from are not going to happen if we are paper trading. That’s another disadvantage but that’s part of the learning process.
Picking weak stocks just to make a trade:
Another disadvantage regarding paper trading is picking weak stocks to trade or not healthy opportunities. They tend to get sloppy so kind of tying it into the emotion factor you’re looking to do a trade just to do a trade because it’s not real money the conditions are not real it’s paper money.
When you’re looking to just do a trade, just to do a trade maybe it allows you to learn about the platform maybe it allows you to learn about execution but when you’re just doing a trade the conditions aren’t real but now you’re getting sloppy, you’re choosing week stocks or you’re choosing weak entries and exit point you’re looking to just do the by order and the sell order.
Trading isn’t just hitting the mouse or hitting a key on the keyboard. It isn’t just placing that order and it isn’t just exiting that order because that’s what most people think about when it comes to trading, they think they need to closely be putting an order in, when in fact a lot of trading is about being disciplined to stick into that trade, to stay in that trade and continue waiting and riding that stock to the upside or being disciplined waiting for your entry point or exit point.
Formfitting:
Paper traders select perfect sections and exits, missing the minefield of snags created by the cutting-edge PC driven condition. These shakeout levels turn out to be very evident to genuine members who have watched many in fact sound positions go up on fire when calculations move into savage mode and search out their stops.
Be wary of the pitfalls of paper trading as in majority of the cases it will give you positive results as it lacks the troughs and crests in the price movement and one is not emotionally attached to the trade as no money is at risk.
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