What is Paper Trading?

Paper trading, also known as simulated trading, is the practice of simulating trading in a virtual transactional environment without using real assets. Traders can use applications and software, as well as physical bookkeeping methods, to conduct paper trading.

Paper trading can be used to analyze real-life trading processes and outcomes. However, traders do not need to put their capital at any real risk. Furthermore, the trading scenarios generated by paper trading are hypothetical scenarios that can be applied to a range of financial instruments, such as stocks, bonds, futures, forex, or cryptocurrency.

It’s recommended for beginner traders to use paper trading as a way to learn market strategies. They can put forward virtual assets and perceive how they behave in the market. They receive real data about the simulated transactions, which they can use to build their own strategy and learn to manage risks before stepping into the field.

The main downside of simulated trading is that the traders have access to unlimited capital. Getting used to limitless assets can lead to the traders developing bad habits in the real market. 

There can also be a disparity between emotions experienced in paper trading and on the real trading floor. During a simulation, a trader may feel relief after experiencing a loss because no real assets were affected. On the other hand, seeing a successful simulation that yields a profit can instill FOMO (fear of missing out).

The issues related to paper trading can be avoided by limiting the time spent working with simulations and observing real-life trading outcomes. It’s recommended to simulate scenarios that are as close to real-world trading as possible to achieve beneficial outcomes.

Paper Trading Platforms

Paper trading can be conducted using different methods of varying accessibility and result replicability. It’s possible to simulate trading using pen and paper if the trader has sufficient data.

However, digital trading platforms are far more advantageous as they are simple to use, provide accurate data, and can simulate real market conditions. Digital paper trading platforms allow users to place a simulated buy or sell order at a chosen time.

The traders can then observe market performance and outcomes and determine their gains or losses as they would in real trading.

Binance

Binance is one of the biggest centralized cryptocurrency exchange platforms (CEXs) in the world. Among its services, Binance also offers users simulated trading. Traders can use real-time prices for paper trading, which allows them to receive valuable, accurate data without putting their crypto assets at risk.

In addition to market simulations, users can also build trading bots with the spot exchange testnet. Users are required to hold at least one Binance Coin (BNB) in their Binance account to access the testnet features. This was developed as a measure to avoid spam.

TradingView

TradingView is a social network and charting platform that offers a range of market analysis tools and financial instruments like indicators, multi-timeframe analysis, and candlestick pattern recognition.

TradingView allows users to engage in paper trading with detailed metrics, projections, and in-depth analysis. It’s recommended for experienced day traders as the interface may be too complicated for novices. TradingView paper trading can be used to simulate day trading, stocks, or crypto trading.