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Paper Trading – Online Paper Trading - Switching to Actual Stock Trading

Updated on March 27, 2011

Idea of Paper Trading

Beginners interested in stock trading will always welcome the idea of paper trading because they find it a fun way to test how the stock market works. They do this without losing their money and the whole thing is more of a game. Paper trading is where you would write on paper the imagined quantity of stocks bought at the current price and then you would wait and see how the market unfold. When the time comes when you feel you should sell your stocks, then all you do is to take the stock price for the day and compute if you have made a profit or a loss for that period. Today, paper trading is called virtual trading where you use free online software to trade imagined trades just as if it was the actual trading platform.

Paper Trading is Boring

With time, many paper traders will find paper trading very boring. This is because they find it is work with no tangible benefits or rewards. But its reward is the knowledge gained. Good paper trading should be done for a good period of at least two years. Remember, to understand the stock market may take five years and even then it’s not a guarantee that after five years you will beat the stock market.

Modern Trading Floor - it looks interesting to be there until when you start losing your money
Modern Trading Floor - it looks interesting to be there until when you start losing your money

Actual Stock Trading in Real Life

After you are comfortable with paper trading, you may be ready to switch to actual stock trading in real life using your hard earned real money. Many people will get scared of actual trading but if done correctly, it’s very rewarding. All the world’s wealthiest men and women have something to do with stocks and stock markets.

What You Need To Switch To Actual Stock Trading

You need a good online broker. A good online broker has benefits as well as requirements that you need to have to join them. Because there are thousands of online brokers, shop around for the best – the one that will fit your needs. You may need to consider the following when choosing a good online broker:

1. Commission per trade - $1 per 100 shares is good. If you are buying shares in lots of thousands, then you need a flat rate per trade.

2. Monthly standing charges - $10 per month is good

3. Check if there is subscription to data – free data subscription is good

4. Minimum amount of money required for open an account - $2000 is good but $5000 is good

5. Check if you can trade on margin

6. Check if you can short stocks

7. Check if you can trade stocks’ options

8. Check if you can trade futures and futures’ options

9. Find the experience required to trade

10. Check the compatibility of their trading software to your pc

11. Find out the credibility of the stock brokers

The Party is Over

Once you have found the right broker, get your money and proceed to open a brokerage account. It’s very similar to opening a bank account. Once you are approved, transfer money by check, wire, swift or whatever into your new account and soon you will begin trading.

The first trade you will do, you will most likely get it right. But after that, the party will be over. The biggest difference between paper trading and actual stock trading is the emotional factor. When it’s your real money on the table, you will start to watch stock prices than never before – perhaps every five minutes. The moment prices start to move against your wishes, you will panic and you will sell your stocks, whether it's the right thing to do or not. This emotion factor is the cancer that has caused many traders to lose huge sums of money. This is especially true for beginning stock traders.

Highly Guarded Secret

Unfortunately, you can not practice getting over the fear and greed factor with fake money or paper trading. It has to be done with money earned by you, not even money that is inherited from your parents. But you can inherit the knowledge from your parents and relatives. Unfortunately you may not get this information easily because it is a highly guarded secret which is reserved to the children of those who know how to go about it. The only option you have, if your parents are not experts in stock trading, is to start trading with small amounts of money, say $200 and be prepared to lose the better part of it. Once the money gets finished, write another check and continue doing so until you get to know how to overcome emotional factors. Did I hear it correctly? To continue writing more checks until I get it right? You must be joking.

Good Stock Trading

Remember, like in paper trading, actual stock trading needs you to have a plan that defines when and where you are going to get out of a trade. That includes how much profit you want to get out of the trade as well as when to get out if the price drops to a certain level. Stick with your plan regardless of what the TV stock analysts are saying. Sooner, and God willing, you will become a good stock trader.

Good trading.

If You Know How to Paper Trade, Do You Know How to Keep Your Teeth and Gums Their Healthiest?

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    • ngureco profile image

      ngureco 8 years ago

      Thank you, Hello, and Amulets for your comments.

      And to you Psychicdog, if one can be able to have a software that he or she will be able to input settings that one can trust, then that would be the best. But having a software that you do not understand what its doing will not work well with most people. How I wish I can be able to develop my robot that I can trust...

    • amulets profile image

      amulets 8 years ago from Singapore

      Thanks for your hub. This kinda getting me excited. I have heard of using software for monitoring buying the stocks as well as dealing with the cut-off amount to sell, is that true?

    • profile image 8 years ago

      thanks for this hub Ngureco. Our emotions are dangerous things eh? but we can't live without them. Logical conclusion may be to use a robot or software to run stock buy and sell?

    • Hello, hello, profile image

      Hello, hello, 8 years ago from London, UK

      Very interesting hub about a world I never knew anything about it. Thank you.