Paper Trading and Practice Accounts: Learn Where and How to Trade

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Paper Trading and Practice Accounts: Learn Where and How to Trade

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Paper trading allows you to try out a broker’s trading platform before investing your money. This type of practice account lets you go through the process of executing orders without risking actual cash. 

If you are new to trading, simulated accounts let you get comfortable with the mechanics of trading on a specific platform so you don’t lose money if you make a mistake. 

Table of Contents

How To Get Started With Paper Trading

You’ll choose a broker and open an account to get started with paper trading. This process is free. The broker puts up to $1 million of simulated money into your account so you can start getting to know the platform. 

The simulated trading process is similar to the actual trading process. With paper trading, you won’t experience delays because the order never leaves the broker. You may do very well with simulated trading, but don’t get overconfident. When trading in real life, factors outside of your control can slow the process. 

Brokers Offering Paper Trading

Nearly every big broker with an online platform offers paper trading. Here’s what to expect from some of the most popular sites. 

Thinkorswim

5.0
5/5

DollarFlow rating

MINIMUM REQUIREMENT TO TRANSITION TO A REAL ACCOUNT

$0

COMMISSIONS

$0 for options, ETFs, and stocks

PAPER TRADING ACCOUNT VIRTUAL FUNDS

$100,000

This platform, owned by TD Ameritrade, has a large variety of trading features, including any charting or scanning tools you need to help you make decisions. You’ll get $100,000-worth of simulated money to start with. Be sure to get familiar with the mobile version of thinkorswim®, as well. You can use the thinkorswim platform on your Apple Watch, tablet, or phone. 

This platform also received the Best Broker for Stock Trading Platform & Research award from multiple outlets.

The mobile app includes the same features you’ll get with the desktop version of thinkorswim. There are more than 300 technical charts and indicators to help guide you. Live market news and insights come through the platform from thinkorswim’s media affiliate; TD Ameritrade. You can access live video streaming from CNBC and follow the global market, in addition to accessing valuable education about strategy. Thinkorswim also offers 24/7 market access so you can practice trading at any time of the day or night. 

E*TRADE

4.5
4.5/5

DollarFlow rating

MINIMUM REQUIREMENT TO TRANSITION TO REAL ACCOUNT

$500

COMMISSIONS

$0 for options, ETFs, and stocks

PAPER TRADING ACCOUNT VIRTUAL FUNDS

$100,000

With E*TRADE, you’ll have access to the Power E*TRADE app, which offers faster entering and exiting positions than the E*TRADE website. Paper trading accounts start with $100,000 in virtual trading equity. 

E*TRADE is commission-free for EFTs, options, and stocks trades. It’s a full-service brokerage, so you can participate in a variety of investments. With a reputation for low-priced investing, E*TRADE doesn’t impose any account minimums. 

Beginner investors can get a step-by-step guide to trading with the E*TRADE platform. The online service center offers direct access to customer service via chat. For help with a more complicated request, you’ll have access to professional Financial Consultants via phone, email, or in person at a branch. 

E*TRADE often offers incentives for new users. If you open an account by funding at least $250,000, you could get a $600 bonus. 

TradeStation

4.0
4/5

DollarFlow rating

MINIMUM REQUIREMENT TO TRANSITION TO A REAL ACCOUNT

$500

COMMISSIONS

$0/trade

PAPER TRADING ACCOUNT VIRTUAL FUNDS

$100,000

TradeStation offers a desktop platform with access to the tools you need to trade stocks, penny stocks, ETFs options, futures, bonds, mutual funds. This is a great place to start if you are interested in trading a variety of asset types. 

Even with a simulated trading account, you’ll get to use TradeStation’s large historical market databases so you can back-test your trading strategies. When you are ready to transition to a live trading account using real money, you’ll enjoy zero commissions on options, futures, an stocks. It’s important to understand that if you aren’t an active trader, TradeStation may not be the right platform for you. Unless you maintain a minimum balance of $100,000, make a minimum of 50 options trades each month or trade more than 5,000 shares per month, you’ll pay $59.95 per month for RadarScreen, a market monitoring tool. The basic Trading Platform is $99.95 per month. 

Interactive Brokers

4.0
4/5

DollarFlow rating

MINIMUM REQUIREMENT TO TRANSITION TO A REAL ACCOUNT

$500

COMMISSIONS

$0/trade for Interactive Brokers Lite

PAPER TRADING ACCOUNT VIRTUAL FUNDS

$1,000,000

Interactive Brokers (IB) starts your paper trading account with a virtual $1,000,000 deposit. You can access their trading platform via their desktop site or app. New traders may find value in the Traders’ Academy, which includes live webinars. The educational section of the IB website is also a great resource for new and experienced traders. 

IB was one of the first online brokers. They now focus on traders, offering a full line of tools to help you make a profit as a trader. You’ll have the ability to trade bonds, ETFs and mutual finds, metals, futures, forex, options, and stocks. There is a $10 per month fee unless you have an average daily balance of at least $100,000 or generate a minimum of $10 in commissions during the month. 

If you don’t need access to all of IB’s tools, you can opt for Interactive Brokers Lite, which is commission-free for trading on US-listed ETFs and stocks. 

Some users complain that IB’s tech support isn’t as robust as competitor’s. 

Frequently Asked Questions about Paper Trading and Practice Accounts

Are practice accounts worth it? 

If you are new to trading, using a simulated trading environment can help you understand the trading process. There’s some value to this hands-on method of learning. If you start off with real money, you risk losing your hard-earned cash on silly mistakes as you figure out by trial and error what methods work best on your chosen trading platform. 

Paper trading and live trading have enough in common that paper trading is a valuable experience for the majority of traders. There are some things you can’t learn from paper trading, though. Understand the limitations of paper trading and keeping your expectations realistic will help you optimize your experience. The only thing you have to lose when you start out with a simulated account is your time. 

How long should I practice with a paper account before I start trading?

Your paper trading experience should extend past the time that you are comfortable with the trading platform. Since there are many differences between paper trading and live trading, and there are some things that you can’t learn with paper trading, most new traders find that paper trading for four weeks provides them with the knowledge and experience they need to move forward with live trading. 

Can I make money with paper trading?

No. Unlike live trading, paper trading involves using only simulated money. Trading platforms offer paper trading to users so they can familiarize themselves with the platform and get comfortable with the technical aspects of trading before depositing real money into an account. 

What are the most important benefits of paper trading?

Paper trading can help you shorten your learning curve without risking real money. 

Stress-free trading

Paper trading bypasses the normal stress associated with losing (or possibly gaining) money. Trading in real life involves a bit of fear for many people. This can make it harder to learn by doing, because you may hesitate to make a good trading decision due to insecurity about your skills. 

Free practice

Each trading platform has its own features and functions. The easiest way to learn about the mathematical process of trading on a specific platform is by working through the process until you are comfortable. You’ll have the advantage of making complex decisions without having to risk losing money and without having to pay any fees to use the platform, while you gain experience with the trading process. 

Builds confidence

While your successes are only hypothetical with paper trading, you’ll be able to identify trends and patterns in real-time without any risk. Once you build some confidence in your skills and your ability to navigate the platform, you’ll be less likely to make big money-losing mistakes when you start trading with real money. 

Test out new setups

Even experienced traders can use paper trading to test out their theories without risking capital. With forward-testing, a trader can use their regular strategy with real trades while testing their new setup with paper trading. After they’ve proven that their setup works, they can transition to real-time trading using theri capital. 

What are some limitations of paper trading? 

Paper trading doesn’t offer a 100% realistic picture of real-time trading with actual money. With paper trading, there are no hidden costs such as commissions and slippage. So, a paper trade that costs $75 may cost $76 in the real world. 

Real world trading may invoke strong emotions, but those feelings aren’t usually a problem with paper trading. When you are dealing with actual profits and losses, fear, panic, and indecision can be expensive. 

The Bottom Line

Most traders new to the process should spend time paper trading before launching in to the world of real-time trading. It’s crucial to put in practice time to identify weaknesses and seek knowledge to help overcome those problems. Paper trading can greatly shorten the learning curve for a hands-on learner. It can also be a valuable exercise for someone who has some trading experience but wants to become familiar with a specific trading platform before risking their money with real trades.

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