Paper trading is simulated trading without real money, when no capital is actually invested in trades. So, this fact makes paper trading perfect learning and testing tool. Real risk is vanished because there are no money to lose. I like analogy of combat pilots that are first learning to fly on the flight simulator, when there is no risk of loss of life or risk of damaging or destroying of fighter plane, same as traders can easily lose their money when they don't have enough knowledge, skills and experiences. But they are improving their skills. I hope that this analogy helps you better understand benefits and reasons of paper trading.

I recommend that before putting real money into real trades beginners should first test their skills on the paper. With paper trading you can test your strategy without risking losing money. The fact that you are not using real money can have big impact on your behavior - you are not under pressure of losing money and you can make more rational decisions without being influenced by emotions. Not being influenced by emotions is one from main goals of trading psychology and it's very important for your overall trading performance. By the time your trading skills are getting better and you gain confidence in your trading actions. When your skills will be on desired level you can then start real trading with real money.

• you can simulate trading without risking your money
• you can trade even if you don't have enough capital yet and it's almost like real trading
• online paper trading is simple and mostly free
• beginners and also experienced traders use paper trading for testing new strategies
• paper trading can be used in all financial markets like stocks, futures, options, currencies, etc.

In the past paper trading was much harder, all trades and calculations were recorded on the paper. But now it's easy and mostly free. As a good online trading simulator I would recommend Investopedia Simulator, when you can simulate trades with stocks and stock options. This service offers real data, many features and a lot of information about trading and investing.

Paper trades demonstrate results of your past decisions and enable you to gain skills and knowledge without risk of losing money. I think that's the most important benefit of paper trading and it's strong enough to encourage everybody who wants to learn more about trading to try it.