What is Paper Trading?

Whether it’s new entrants or seasoned veterans, one statement that stands equally true for both is, “Practice makes perfect”.

When it comes to the stock markets, the better you are at it, the safer stays your capital. And nothing helps you get better here than… you guessed it, practice.

But the cost of failure is a lot more painful when it comes to investing. Sure, you are supposed to spend the excess money you have and not the money that funds your necessities (that’s what you do, right?). Yet losing any money always stings.

But what if I told you that your money could remain safe while you learn to invest by doing it. Do not think for a moment that I am joking! No, no, no… This is a very real possibility, all thanks to the focus of today’s blog, “Paper Trading”.

Paper Trading: Practise without Risks

This strange process called “paper trading” allows prospective investors and existing investors to “practice” trading.

I admit that direct exposure to the stock market counts toward this “practice”. But this direct exposure also brings the risk of losses and possible erosion of the investors’ funds.

Education about the stock markets has come a long way. It began with a select handful being regarded as “gifted” in the field. The idea of investing or trading remained mysterious to those who didn’t belong to this circle of “elites”.

But this barrier to entry started to dissolve, and slowly but surely, the general public started taking an interest in the stock markets. As a result, the need for a formal and relevant source of education for the stock markets rose too.

Online ed-tech platforms capitalised on this need, and the public started receiving real, valuable, and relevant knowledge.

But this isn’t a blog about financial education’s development in India. While the state of said education has come a long way, it still lacks the benefit of a practical approach. After all, you’ve never truly learned something unless you’ve tried doing it yourself.

Turning this tangent I went on back to the topic at hand; when it comes to the stock market, the “practical approach” has a few issues.

As mentioned before, learning about the stock market through direct exposure causes one’s capital to be threatened by the risk of loss. It’s not the risk that people mind; investing is an exercise in risk-taking, and almost all investors are up for it.

What is difficult to stomach is a negative start or the high likelihood of one. This threat becomes more severe when one realises the starting capital of most new traders is limited and small.

So if money (or rather, its loss) is the problem, why not just take it out of the equation? Because that’s what paper trading is all about.

Paper trading allows traders to experience various market conditions and phenomena while making them aware of their response to said stimuli. Money is not a problem since paper trades are made with virtual money.

This allows new entrants to discover all that the stock market offers, minus the risks. Existing players get to brush up on their skills while keeping their corpus safe. Since the money used is not real, neither are the profits, but that is never the aim of this form of trading.

How to Start Paper Trading?

Originally paper trading was fine manually. This meant that people used pens, paper and their minds to create trade scenarios that they practiced.

This use of paper became the namesake of this process and has stuck through time. But the use of this old-fashioned method had the following limitations:

1. Traders were limited to only those market scenarios they could imagine or believed were likely to happen. This caused the practice to be limited to the trader’s personal or mental biases.

As a result, the practice became useless as traders would practice with limited scenarios. They would include different scenarios only after their funds had been exposed to the new scenario.

2. Since paper trading involved the usage of actual physical materials, the process was very cumbersome. Recordkeeping is an integral part of paper trading, and maintaining folders over folders of old paper started becoming problematic.

But with technological developments, paper trading slowly started moving towards a more digital format. This transition was a thoroughly beneficial one.

Introducing technology to paper trading also made practising with various asset classes a lot easier. Different assets that could be traded in moved in different ways, and it would be difficult for a singular person to keep track of all these nuances.

Technology allowed traders to practice with instruments they weren’t familiar with. This exposure allowed traders to learn about the new instruments as well.

Today paper trading is known by many names, including Virtual Trading, trading using a Demo Account or Demo Money and, of course, Paper Trading. The names might be many, but the process is similar, if not the same.

Paper Trading apps in India

Speaking of app-based paper trading, one of India's first paper trading platforms was Olymp Trade. The archaic form of paper trading was known in India and its traders. But as more and more of the country’s youth started entering the stock market, this form started feeling more like a chore.

Olymp Trade capitalised on the obsolescence of this form and popularised its app-based version with its own free Demo Account.

Established in 2014, the Olymp Trade platform offers services not just limited to only paper trading. Olymp Trade is also a broking platform with multiple instruments.

Currency trading and app-based paper trading were two pretty foreign phenomena to the Indian stock market enthusiast. Both of these were popularised and made easier to access by Olymp Trade.

Speaking of foreign, the platform allows users to trade in international instruments like foreign shares (Apple, AMD, Disney, etc.), commodities (natural gas), foreign currencies, cryptos, and more.

Olymp trade allows users to practice trading in these instruments with virtual money. Each new sign-up gets credited with $10,000 worth of virtual money that can be used to practice without any risk to the traders’ actual funds. If the trader runs out of these virtual funds, renewal is easily accomplished by contacting Olymp Trade’s support, which is active 24x7.

Olymp Trade is building an ecosystem by providing its users with a ”Marketplace”. The marketplace allows users to gain access to tools like technical and fundamental analysis charts that they can use on Olymp Trade’s platform and on other platforms.

What’s also great about the tools in Olymp Trade’s marketplace is that around 50% of the tools available on the platform are free.

Another feature in Olymp Trade’s ecosystem is the plethora of tutorials available to users to allow them to learn the basics of trading before beginning even paper trading.

One last benefit of these features that I’d like to mention is that the tools can be purchased or acquired individually, which means that users can customise their trading toolkit without dealing with a bundle of tools shoved their way.

As far as trading with Olymp Trade goes, users can start trading with just $10 of minimum deposit and a minimum investment of only $1. In the context of India, that’s ₹700 for the minimum deposit and ₹50 for the minimum investment.

Olymp Trade also provides multiple withdrawal options. Users can withdraw through various traditional payment intermediaries like PayPal, PhonePe, etc. and banks. What is unique with Olymp Trade is that it also allows withdrawals in cryptocurrency.

The platform also has an EXP feature which gives users different status levels. The levels on the platform are named Starter, Advanced and Expert. The Starter level is automatically applied to every account as it is created.

Users can upgrade to higher levels by paying a small fee as in a subscription method, by making and maintaining specific one-time deposits in their accounts or by making profitable trades. These trades help the user’s account earn experience points, which can be exchanged for higher tiers. The more profitable a trade, the higher are the experience points earned.

In terms of regulation, Olymp Trade is regulated by FinaCom, a self-regulatory organisation and an external dispute resolution body. FinaCom is based in Hong Kong and London and primarily deals with matters related to Forex.

Conclusion

Paper Trading started to educate oneself about the ins and outs of trading, but the system turned tedious, and education started becoming a chore. With the introduction of technology into the mix, the practice tool achieved traction with the people again.

Today multiple platforms have made the process of paper trading into a gamified experience instead of it feeling like boring math homework.

Have you tried paper trading before? How has it helped your investment journey? Tell us in the comments section below.

We’d also love to hear from you. If you have any topics you want to be covered in these blogs, tell us, and we’ll get right to it.