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

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.

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.

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

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.

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.

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.

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