Paper Trade

Definition of 'Paper Trade'


Using simulated trading to practice buying and selling securities without actual money being involved. While a paper trade can be done by simply keeping track of hypothetical trading positions, it usually involves the use of a stock market simulator that has the look and feel of an actual stock market where budding investors can hone their trading skills. The proliferation of online trading platforms has made it easy to practice paper trading without committing actual capital. Another benefit of a paper trade is that it can be used to test a new investment strategy before putting new money into it.

Investopedia explains 'Paper Trade'


To derive the most benefit from paper trading, it should be taken seriously, with investment decisions made based on the same risk-return objectives, investment constraints and trading horizon as in real life. So, for example, if you are a risk-averse individual, it would make little sense to paper trade like a day trader and make dozens of very short-term trades.

Paper trading may also give novice investors or traders the impression that trading is quite easy, and lull them into a false sense of security. This is because paper trading does not involve putting one’s hard-earned money on the line. As a result, basic investment strategies such as buying low and selling high – which are quite difficult to adhere to in real life – appear relatively easy to make while paper trading. The first lesson of paper trading, therefore, is that while it is a great practice tool, it is very different from actual trading with real money.



comments powered by Disqus
Hot Definitions
  1. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  2. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  3. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  4. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  5. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  6. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
Trading Center