A Paper Trade is a type of fake trade that enables an investor to practice the purchase and selling without compromising actual money. This term goes back to a time when aspiring traders practised on paper before Investing their hard-earned money into the Market.
Throughout this process of learning, a trader gets to record all of the trades by hand and keep an eye on the hypothetical trading portfolios, positions, losses and profits.
Thanks to the commencement of online trading software and platforms, there has been immense ease and simplification in the paper trading process today. In the present scenario, investors get an opportunity to trade in the live market without investing the real Capital. With this process, they get to assess whether the ideas of investment are fruitful or not. In fact, there is a variety of such platforms that have been curated with an intention to aid customers to try options along with varying investment strategies without risking the loss of money.
Almost everything about paper trading is similar just that the investor is not popping out cash from his pocket. However, to get the most out of this trading type, the trade placement and the investment decision must follow actual trading objectives and practices.
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The trader must keep the risk-return aim, trading horizon and investment constraints in mind as they would do with any other live account. Moreover, paper transactions, or paper trading, can be applied to several market conditions. For instance, a trade that is placed in a market categorized by high market Volatility tends to result in more slippage costs because of the wider spreads in comparison to a market that is moving in an arranged direction.
Basically, slippage takes place when a trader acquires a different price than what is anticipated from the time the trade was initiated to the time it was actually made. Traders and investors can use paper trading to be familiarized with a variety of order types, such as market orders, limit orders, stop-loss, and more. Along with that, it is easier to find news feeds, quotes, and charts on plenty of platforms.