Paper trading: advantages and how to
Paper trading began as a way to practise trading before the existence of digital trading platforms. Today, paper trades refer to using demo accounts or other trading simulators to practice trading live markets without risks.
Share this:
What is paper trading?
Paper trading is the practice of simulating trades in live markets without actually buying and selling securities. It’s a way to manually test and track trading strategies without risking capital on open trades.
The name paper trading originated before the digital era. Without the use of demo accounts and other trading simulators, traders applied their strategies to the market by hand. Traders would note how their proposed trade would perform in the live market by hand, tracking profits and losses made. While there are now tons of digital options for testing trading strategies, the name paper trading has stuck.
Whatever form you paper trade in, it's useful to test your trading strategies before trading live markets where real money is at stake.
What are the advantages of paper trading?
Paper trading offers several advantages for new traders compared to immediately trading live markets:
· You can test new strategies before risking money in a live account
· Paper trading forces you study and understand market effects, helping you become more knowledgeable about the markets you want to trade
· A physical ledger of your trades allows you to reflect and analyse on past actions and your own trading psychology
Paper trading vs live trading
Paper trading attempts to mimic live trading as closely as possible. Paper trading may give you more accurate test results compared to other methods of evaluation like backtesting. However, there is one major disadvantage. When trading in any type of simulated account, your emotional response will not be as strong as when trading live markets.
The psychology behind managing your emotions when trading is one of the largest risks new traders have to manage. Impulsive responses to market movement can completely deride your planned strategies. Paper trading in simulated accounts with no capital risk can give you a false sense of confidence while trading. Not using real money may also numb your reaction to losing trades.
In this regard, there is no substitute for live trading. However, paper trading with a demo account before hitting live markets is strongly advised. Learn more on how to trade successfully, then open a demo account to paper trade yourself.
Paper trading vs backtesting
While paper trading evaluates how your trading strategy performs in real-time, backtesting applies your strategy to past markets. Backtesting a trading strategy can be done manually or with automated software. The process involves identifying moments in the past when your trading strategy would be triggered. Then, you open a position and follow the trade to its conclusion.
Backtesting allows you to evaluate multiple results of your trading strategy in a given period simultaneously. You can then calculate a percent return for the total period analysed, providing a clear picture of how profitable your strategy may be.
Unlike paper testing, backtesting is done in historical markets. This comes with some disadvantages. Market conditions could have shifted dramatically enough that there is no suitable period to backtest your strategy in.
Additionally, backtesting can only be done with technical strategies. Entry and exit points must be triggered by price action and indicators to accurately predict past performance. Paper trading, in comparison, can involve fundamental analysis as you monitor your trading strategy in real-time.
Paper trading simulators
Most trading platforms offer paper trading simulators, usually advertised as demo accounts. They may vary by provider, though. Some online brokerages offer demo accounts with delayed market information. Other less sophisticated trading simulators may display completely random market action not connected to the real markets.
How to start paper trading
You can start paper trading in just a few minutes with a City Index demo account. The demo account provides access to all 13,500+ markets available to live accounts with unlimited features like TradingView, Trading Central analysis and more. Open a demo account today and practise trading with €10,000 in virtual funds. Then, when you’re ready, open a live account to bring your trading strategy to the markets.
What is paper trading?
Paper trading is the practice of simulating trades in live markets without actually buying and selling securities. It’s a way to manually test and track trading strategies without risking capital on open trades.
The name paper trading originated before the digital era. Without the use of demo accounts and other trading simulators, traders applied their strategies to the market by hand. Traders would note how their proposed trade would perform in the live market by hand, tracking profits and losses made. While there are now tons of digital options for testing trading strategies, the name paper trading has stuck.
Whatever form you paper trade in, it's useful to test your trading strategies before trading live markets where real money is at stake.
What are the advantages of paper trading?
Paper trading offers several advantages for new traders compared to immediately trading live markets:
· You can test new strategies before risking money in a live account
· Paper trading forces you study and understand market effects, helping you become more knowledgeable about the markets you want to trade
· A physical ledger of your trades allows you to reflect and analyse on past actions and your own trading psychology
Paper trading vs live trading
Paper trading attempts to mimic live trading as closely as possible. Paper trading may give you more accurate test results compared to other methods of evaluation like backtesting. However, there is one major disadvantage. When trading in any type of simulated account, your emotional response will not be as strong as when trading live markets.
The psychology behind managing your emotions when trading is one of the largest risks new traders have to manage. Impulsive responses to market movement can completely deride your planned strategies. Paper trading in simulated accounts with no capital risk can give you a false sense of confidence while trading. Not using real money may also numb your reaction to losing trades.
In this regard, there is no substitute for live trading. However, paper trading with a demo account before hitting live markets is strongly advised. Learn more on how to trade successfully, then open a demo account to paper trade yourself.
Paper trading vs backtesting
While paper trading evaluates how your trading strategy performs in real-time, backtesting applies your strategy to past markets. Backtesting a trading strategy can be done manually or with automated software. The process involves identifying moments in the past when your trading strategy would be triggered. Then, you open a position and follow the trade to its conclusion.
Backtesting allows you to evaluate multiple results of your trading strategy in a given period simultaneously. You can then calculate a percent return for the total period analysed, providing a clear picture of how profitable your strategy may be.
Unlike paper testing, backtesting is done in historical markets. This comes with some disadvantages. Market conditions could have shifted dramatically enough that there is no suitable period to backtest your strategy in.
Additionally, backtesting can only be done with technical strategies. Entry and exit points must be triggered by price action and indicators to accurately predict past performance. Paper trading, in comparison, can involve fundamental analysis as you monitor your trading strategy in real-time.
Paper trading simulators
Most trading platforms offer paper trading simulators, usually advertised as demo accounts. They may vary by provider, though. Some online brokerages offer demo accounts with delayed market information. Other less sophisticated trading simulators may display completely random market action not connected to the real markets.
How to start paper trading
You can start paper trading in just a few minutes with a City Index demo account. The demo account provides access to all 13,500+ markets available to live accounts with unlimited features like TradingView, Trading Central analysis and more. Open a demo account today and practise trading with €10,000 in virtual funds. Then, when you’re ready, open a live account to bring your trading strategy to the markets.
Open an account in minutes
Experience award-winning platforms with fast and secure execution, and enjoy tight spreads from 0.5 pts on FX and 0.3 pts on indices.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
NZD/USD pressure mounts as payrolls looms large
NZD/USD has fallen sharply as Fed rate expectations reset higher, but extreme downside stretch and major support raise the risk of a violent counter-trend rebound.
US Core PCE Preview: Stale or Significant for the Fed
Core PCE inflation takes center stage Wednesday, with traders watching for signs of renewed price pressure and clues on whether the Fed could hike again in October.
Australian Dollar Forecast: AUD/USD Four-Week Slide Nears Critical Uptrend Support 9 29 2026
Aussie momentum has deteriorated sharply into quarter-end, with inflation, Core PCE and NFP on tap as AUD/USD closes in on a pivotal technical threshold.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.forex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.