Given the current market conditions, it might be a wise idea for beginner investors to consider paper trading stocks. Online Paper Trading presents an opportunity for would be stock market traders and investors to try different trading strategies and methods without the risk associated with traditional trading. Successful implementation and profit generation from these strategies usually require a measure of technical knowledge. Investors can test these strategies with paper trading to avoid taking on excessive risk due to inexperience. Believe it, in markets like the present there are risks, and a beginner investor can be overwhelmed very quickly.
There are many online brokerages that have a system on place to paper trade stocks. You start with a hypothetical sum of “money” and place buy and sell orders according to your strategy for a given security or stock, You place your buy orders as you normally would except you are not risking real money, this the term paper trading. Sell orders work similarly.
Paper trading allows you time to research companies and essentially trains you to pick stocks according to your criteria.. For example, buying XYZ at $12.00 per share. Determine why that is a good entry level. Why is this stock poised for a move? Are good earnings due? One of the hardest things you will do as a stock trader or investor is planning an exit strategy. Why is that? In a word greed . There is nothing mire exhilarating than purchasing a stock and watching it make a run of 20% over the course of a day. Contrarily there is nothing more frustrating than watching a stock head south and you cannot figure out why. This is why before you buy a stock it is advisable to have an exit strategy. Paper trading can help you to prepare yourself to make these decisions.
Now for a word of caution. Paper trading does not expose a very important component of trading with real money. Were it not for emotional decisions, everyone might be able to make successful stock trades. However we are humans and we tend to make emotional decisions. The stress level is just not present when paper trading stocks. Beware of building a fable confident attitude when you transfer your money to a real trading account.
Still the positives far outweigh the negative as paper trading stocks allows you to get familiar with the processes to become a successful stock trader.