Paper Trading: Practice Makes Perfect

Let’s face it; even the most experienced options traders weren’t born knowing how to trade. Although it helps to have a natural aptitude for numbers, the only way to get better at trading options is to actually do it yourself though reading options trading articles can help.

There is an old adage from auto racing that goes, “There is no substitute for seat time.” This just means that if you want to become a good driver, you have to get out on the track and do your laps.

Well, this same principle holds true for options trading, but the only difference is that when you’re trading your own money you just can’t pull in for a pit stop if something goes wrong like you can in auto racing.

There is one way, however, to get the seat time necessary to become a good options trader without putting any money at risk. This practice is called paper trading or virtual trading, and it just could be the best way for you to get your trading skills up to speed.

Learn to Gain Without Pain

Basically, paper trading is a trading simulator. You can buy and sell puts and calls, test out spreads, straddles or other trading strategies, all before you put any real money on the line. Much like a pilot who trains on a flight simulator, paper trading allows you to make mistakes — and even crash and burn — without the ill effects of any lost capital.

When you paper trade, you are using play money to make your trades. By working your trades out through this simulated experience, you can get the feel of what trading with your real dollars would be like.

Now to be certain, paper trading does have its differences with real money trading. For one thing, people tend to make more-aggressive moves when no real money is at stake. For this reason, you should try your best to treat paper trading as if real money were at stake. This is difficult to do, but the more realistic you make your paper trading, the better the results you’ll see when real bucks are at stake.

The biggest advantage of paper trading is that it serves as a great pedagogic tool. By practicing your trades, you get familiar with the ins and outs of buying and selling options, without the fear of losing your shirt.

Unfortunately, not having any money at risk can actually be a disadvantage, because it’s just a fact that human beings learn from suffering the consequences of their mistakes . Yet with no real consequences to paper trading, the lessons learned aren’t likely to be as fully imprinted into your consciousness the way real money losses would be.

Nevertheless, paper trading is a great way to get you into the options game without risking any capital.

So, how do you get started with paper trading? Well, one way is by simply opening an account with one of the firms featured in our OptionsZone.com’s Broker Center. These brokerages have paper trading capabilities built into their software and platforms that allow you to basically trade for real, without risking your real money.

Here’s a quick recap of each Broker Center firm’s paper trading capabilities.

OptionsXpress

The company won’t go so far as to say practice makes perfect, but they do say practice can certainly help you grow and develop your knowledge of investing. With their “Virtual Trade” tool, you can experience real market conditions using the same order entry screens available for actual trades.

By creating the Virtual Trade screens that are almost identical to their regular order entry platform — including customized order screens for advanced strategies — you get a truly realistic trading experience. Oh, and it helps that the service is completely free of charge.

Thinkorswim

The company says that while you wait for your account paperwork and funding to be processed, you can practice trading with $100,000 of virtual money in their paper trading software, appropriately called “Paper Money.” They encourage clients to use their Paper Money service in conjunction with a complete suite of narrated tutorials and instructional demos.

OptionsHouse

The firm’s “Virtual Trading” tool allows you to hone your trading skills and try out new strategies without risking any real money. With Virtual Trading, clients can log in virtual trades, track the performance of those trades, and then employ the firm’s evaluation tools to assess the performance of those trades.

Sure, there is no substitute for real money trading experience, but by paper trading through these brokerages, you can certainly get a lot of options trading seat time — without fear of crashing and burning.

For more information about choosing the right broker for you, visit the OptionsZone Broker Center.


Article printed from InvestorPlace Media, https://investorplace.com/2009/02/paper-trading-practice-makes-perfect/.

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