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10 Pros & Cons of Paper Trading in the Stock Market

November 17th, 2015

Hey it’s Sasha Evdakov and welcome to Tradersfly.com where I share with you some insight about trading and investing in the stock market.

Now in this week's video what I'd like to do is just quickly shoot off some Ten Pros and Cons of paper trading so we’re going to go through Five Pros and Five Cons of paper trading. Of course there are going to be many more pros and cons depending on how deep you go into the subject matter but just to give you some insight some things to think about paper trading if you’re just getting started maybe this will give you some guidance of when you should or when you shouldn’t paper trade.


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To get things started we're going to go through the Five Pros and the First Pro is you don't have to risk your own money. Now if you don't have to risk your own money you can do whatever you want you can get in thousands of shares you can get out of thousands of shares you put all weird and wacky positions that you have no clue about or just get used to the panels.

That's really a great feeling is when you don't have to risk real cash or real capital it allows you to just experiment with things and just get the hang of things. So not having to risk real money is one of the first advantages of paper trading.
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The second advantage is that you can trade stress free because you're not risking your own real hard earned money or capital you can go ahead and play around and dabble around and execute and make trades without that emotion killing you with how going to bed and not being able to sleep so you don’t worry about losing any money and because of that your emotions should be nice and level.

There are lots of people out there that when they trade they trade stressfully. They trade with a lot of stress and baggage when you paper trade fortunately because it's not real money you don't have all that weight pulling on you because again it's not real money.

So you're able to trade naturally without worrying about the loss of capital and this allows you to make judgments and decisions clear minded and allows you to really practice appropriately if you're just getting started in the market.
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Moving on to the advantage Number Three it really does allow you to get comfortable but not only comfortable in your trading it allows you to get comfortable with your platform. so if you're starting out with a new platform if the tools are a little more confusing it allows you to get comfortable with, it allows you to play around and click on things to see what does what, how things work, how things function to see if you're comfortable with that panel.

Not everyone is going to be as tech savvy as Bill Gates or Mark Zuckerberg so you're going to need to play around with the panel and get the feel of how things work in a trading platform because it's a lot different.

Just like driving a car with your first getting started driving a stick shift or manual takes time to get the hang of it, so the same thing in a trading platform there's a lot of knobs widgets and little tools and things that you can click and if you click the wrong things it can cost you a lot of money if your trading in real money or a real capital account.

So with paper trading it removes all that risks and allows you to trade fake money, paper money and allows you to get used to that trading platform.
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Advantage Number Four is that it allows you to build confidence so this one ties into the stress factor. So because you’re trading without any stress it also allows you to build some of that confidence so as you start making some profitable paper trade it allows you to build some of that confidence.

The more confident that you feel about trading the more clear minded that you feel and when you're clear minded when you're relaxed it's like playing a sport when you relax you're able to be in the zone, you're able to trade in the zone and you're able to make things as good as you normally would trade.

As you build that confidence it allows you to trade stress-free and it allows you to continue to make better and better trades for the future.
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The Fifth Pro advantage or benefit to paper trading and one of my favorite reasons why I like paper trading certain situations is that it allows you to test strategies systems and see the probability of success.

Let's say you found a new tool a new technique a new strategy or you want to test something out if you paper trade that strategy that technique or that system, it allows you to see the percentage of success and that's really what I like using the paper trading functionality for.

For example maybe you're already trading successfully and your trading let’s just say basic stock and if you're trading basic stock and you're doing just fine and you want to add another strategy, let's say you want to move to options and you want to go ahead and trade some options.

When you start paper trading options, it allows you to see, if will this strategies work as well for a real account and if they do you can go ahead and now add this additional strategy to your real trading account so now you can trade stocks and you can trade options then you continue this process as you learn a new strategy or a new technique or new system you can go ahead and add those to the buckets of already successful techniques that you have.

Just starting with one is a great point that's all you really need but if you continue to add and build upon that really using paper money and paper trading allows you to see the percentage of success and it allows you to test out those strategies without any risk.

Now let's get to the Cons or the disadvantages of paper trading probably not one that we want to talk about but we need to know and understand.
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The first disadvantages that the market conditions are not necessarily always real sometimes paper trading is going to be delayed or behind maybe 15 minutes or maybe it'll be an hour delayed or one day delayed even if you have real time with your paper trading account or software or you're using just pen and paper to record your trades your still market conditions are not the same because they also affect you.

When they affect you this also impacts your stress, it impacts your emotions so the conditions overall aren’t going to be the same when you’re trading paper money as you are with real money. See when it comes to real money that stress factor that we talked about earlier in the advantages that you’re trading without that stress is really important to learn to deal with.

It’s those emotions it's learning how to control your emotions and being disciplined in your trade, it's really one of the things that you really need to learn in trading. Most people aren’t going to be honest with their emotions, with their behavior.

If I'm constantly late person, if I'm constantly not meeting what I say to my friends most people don't want to admit to these things and in trading if you don't do that you're going to get burned out so if you're not trading and learning about your emotions that's going to be really bad for your trading account.

That is one of the main disadvantages to paper trading is that you don't get those real life situations of learning how to deal with the losses, learning how to deal with the stress or the emotions. It’s not necessarily going to be extremely stressful but you still have to learn how to deal with those emotions of euphoria or over excitement or just really happy state of mind or some of those times where those trades don't work out in your favor and you have to take a loss.

Unfortunately, with paper money you don't get that one-to-one relationship or that feeling as much as you do with a real account because when real money is on the line you’re more connected to it.
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The second disadvantage is your own personal trades don't impact the market when you’re paper trading. For example remember that trades typically trade on volume and if a stock is trading 100,000 shares per day and it's a $5 stock, if you're putting in let's say fifty or $100,000 or $200,000 into that trade and a trade very lightly you're going to move that stock and you're going to move that stock to the upside or when you sell it you're going to move it to the downside.

So your impact in the market isn't accounted for when you’re paper trading and this can be really dangerous and gives you a false sense of hope if you’re trading those stocks that are less liquid when you’re paper trading.

Make sure your training liquid stocks make sure that you’re trading stocks that actually will be very similar to the conditions that you expect with a real account when you’re paper trading.
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Slippage and Commissions is the third issue or the third disadvantage when it comes to paper trading but sometimes you just can't get filled at certain prices. Not to mention paper trading something doesn't account for commissions if they do then by all means that's great.

Sometimes you'll get that slippage cost you have those additional little cost that you have to deal with whether that's even having a broker minimum that you have to hit minimum rates or fees within your broker that you have to pay for it if you don't hit that get the pay for that and that's all part of the trading.

As a business part you have to think about all these things and a lot of times with just paper trading it just gives you a little narrow view of this and you don't take into account all the other factors such as minimum training requirements, meaning minimum amount of trade that you have to do, the commission or the slippage costs because you can't get in the trade or you can’t get out of the trade or you missed the trade so all these little things can come up.
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The Fourth disadvantaged or con is missing out on future profit potential so for example let's just say you went ahead and you traded one thousand shares of a certain stock and that stock exploded $20 now you could have made $20,000 on that trade but if you were trading with paper money unfortunately you wouldn't have made that $20,000.

Those missed opportunities or opportunities that you could've had and made real money from are not going to happen if you’re paper trading. That's another disadvantage but that's part of the learning process. Just think of it as part of the learning part and remember that there's always another trade just remember the word next go on to the next trade move on and make another trade.
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The Fifth disadvantaged or con regarding paper trading is picking weak stocks to trade or not healthy opportunities. They tend to get sloppy so kind of tying it into the emotion factor you're looking to do a trade just to do a trade because it's not real money the conditions are not real it's paper money.

When you're looking to just do a trade, just to do a trade maybe it allows you to learn about the platform maybe it allows you to learn about execution but when you're just doing a trade the conditions aren’t real but now you're getting sloppy, you're choosing week stocks or you're choosing weak entries and exit point you're looking to just do the by order and the cell order.

Remember trading isn't just hitting the mouse or hitting a key on the keyboard. It isn't just placing that order and it isn't just exiting that order because that's what most people think about when it comes to trading, they think they need to closely be putting an order in, when in fact a lot of trading is about being disciplined to stick into that trade, to stay in that trade and continue waiting and riding that stock to the upside or being disciplined waiting for your entry point or exit point.

Those kinds of things you need to also be aware of when you’re paper trading. In the end the big question is should you paper trade? Well the answer to that is if you're just brand new, you're just getting started it's probably a good idea because it will familiarize you with the trading platform, with the panel, with reading the knobs, understanding the lingo the language of how things work and how things operate.

Then again you want to move away from that as quickly as possible to at least executing one or two basic and real trades because there's a lot of things that you won't learn from paper trading just because of our own natural human behavior, we’ll get sloppy, we’ll also be entering and exiting stocks that aren’t necessarily the best of breed.

There's a lot of things you just can't learn the emotions aren’t going to be tied to a paper money or paper trading account so all these things you need to learn to deal with. If you're just getting started you're trying to learn the panel and the platform that's perfectly fine. As you start progressing and you start moving forward you start getting comfortable with the software you may want to start putting on a single share or five shares.

Now yes I understand you may lose on commissions and it's going to cost you but now you start learning about your own emotions and you start learning how to deal with these things and then you can continue and increase your share count as you start entering and exiting at the appropriate times.

You can always add a few zeros at the end of the number of shares that you’re trading so you can go ahead and continue progressing that way but you got to learn how to deal with those emotions with those stresses if you have any of them or just that psychology factor and that's part of pain for that education and it’s part of the learning that through that experience.

After a little while you’ll continue to grow and you’ll continue to increase your share count where you get comfortable you can stick around that region and area but you can of course always go back to paper trading if things aren't consistent, if you're not reading the markets right.

If you want to try a new strategy or system you can always go back to paper trading and see how it does for you and if it works out you can add it to what you’re already doing but remember that paper trading is just one step or a stepping stone to get to that next stage and you got to continue moving step by step.

You got to continue moving higher and higher to continue accelerating further in the future and towards your destination and towards your goals. If you just stay at paper training for a long time 2 to 5 years and you never make one single trade you won't really be able to progress further.

Go ahead start with paper trading but remember continue the progression, take action, move forward and the quicker and quicker you can implement things, speed of implementation the faster you'll get to your destination or the faster you’ll progress in your life.

Thanks for joining me in this video, if you found this video helpful insightful or you learned something and you want to see some of my more in-depth video training as well as some of the stocks that I have or I’m looking at for that week then subscribe to my rapid recaps by clicking this link and when you get there enter your name and email address and I'll send you an email when those are released as well as getting some specials and promotions on some of the products when they come out.

If you want to continue hanging out on YouTube and watching some of the other shorter lessons and videos then click one of these thumbnails right below this video.

I’m Sasha Evdakov thanks again for joining me remember that there's more to life than just money, go out, do what you love, contribute to other people but most importantly live life abundantly.

I'll see you next time!

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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