Paper trading: Seven Benefits to practicing buying stocks

By IntrinsicValueFormula. Originally published at ValueWalk.

Scared to pull the trigger on that first stock purchase? Looking for a way to start practicing before you put your actual, hard-earned money on the line? Buying stocks by paper trading might be one of the best ways to start learning how the process works. It also gives you a means to practice your methods of picking stocks to buy before actually putting the real money in. Let’s check out the 10 ways to practice buying stocks by paper trading.

Paper Trading Definition:

According to Investopedia.

“A paper trade refers to using simulated trading to practice buying and selling securities without actual money being involved.”

Pretty simple huh?

Paper trading can be done pretty simply by using a spreadsheet and some simple formulas. All that is needed is the time to enter the tickers, prices and any changes that occur. Whether you initiate a position change, via a buy or sell. Or a stop-loss.

A much easier and better way to go is to utilize the many different platforms that are out there to allow you to do this electronically. The many different apps that enable you to do this type of trading are amazing.

Let’s talk a little bit about them.

Benefit number 1: Online trading platforms

The explosion of online trading platforms has made it easy to practice paper trading without actually committing real money.

Let’s talk about some of the ones out there that I use:

Stock Wars: This was my first foray into paper trading. This app starts you with a $100,000 account. You can buy and trade any stock or bond that is available on the market.

Some cool features:

• Shows date and purchase amount so you can track your progress
• Dividends are calculated and added to cash account
• Gives you a cost basis of your purchases
• You can access all relevant technical information on any stock you are tracking
• You can see how you do against other traders
• Any stock/bond/mutual fund/ETF in the investing universe is available to trade
• Gives you the numbers on your performance for the current month and year

And the best part is that is that it is free!

Stockfuse: Another app that allows you to buy and trade any stock in the universe. It gives you a $200,000 account to begin trading with.

Also, tracks your portfolio for the day and gives you a P&L for the day. Plus it shows your cash position and account value.

Some cool features:

• Each trade shows your share count, entry cost and current price of your purchase
• Gives you a current value of each position
• Shows a P&L for each trade as of purchase
• Gives you a daily performance of each position
• Displays a percentage up or down for each position daily
• Allows you to be able to do a quick trade doing either buy more, sell or close your position
• Quick looks at current technicals on each position

Again free! Also, allows you to track your progress against other investors.

Investopedia Stock Simulator: This is a newer addition for me, as I have been using the others for a while now. Investopedia is a phenomenal resource and I was pleased to see they started offering a stock trading simulator.

They have some great tutorials on how to play their game. It has some cool features as well:

• Portfolio page to be able to manage all of your portfolios
  • Shows all the relevant information on your current portfolio
    • Purchase price
    • Current price
    • Total value of all of your holdings
    • Today’s change of each position in your portfolio
    • Total Gains/Losses for each position
• Buying stocks gives you a real world feel as it displays the same options your broker would when you purchase a stock
  • Stock symbol
  • Purchase quantity
  • Price
    • Market
    • Limit $
    • Stop $
  • Duration
  • Send email to confirm trade
• Gives you a listing of the top five movers and shakers on a daily basis

All in all this simulator gives you the feel of working with your real-world broker. I use TradeKing for all of my trades and this is very similar to their platform so it feels very familiar to me.

There are numerous other great simulators out there to practice your trading skills.

The ones that I came across the most frequently were:

• Scottrade
• TD Ameritrade
• Optionshouse
• Charles Schwab

Quite a few online brokerages offer paper trading or simulators as a tool to help train their clients. It is a great value add to beginners as it gives them the feel of buying and selling. Without actually putting their hard-earned cash at risk

Benefit number 2: Learning to invest without any risk

This is probably the greatest advantage to paper-trading there is. Let’s face it when you are just starting out in anything that we try. We are going to be nervous, unsure of ourselves.

This platform allows you the ability to practice making trades without any actual “skin in the game.” This mere fact alone can make give you the confidence to learn without the fear of failure.

One of the mental roadblocks involved in getting started in investing is the fear of losing money. I am not going to tell you that if you practice enough that you will never lose money. That is a lie, even the best investors make mistakes and lose money.

But that is no reason not to start. This platform gives you the ability to try without that fear holding you back. Because there is no actual money involved you can experiment without worrying about losing money.

You can explore different avenues of investing and see which fits you the best. The platforms allow you to track your progress. And it gives you the ability to see how you are performing relative to other investors, as a gauge.

Benefit number 3: Learn as you go

When you first sign up for a trading account. There will be different terminology that you will encounter that may be confusing. It can be a little overwhelming at first. This can lead to paralysis and make you hesitate to pull the trigger on that actual first trade.

The first time you buy a stock will be a nerve racking time. It doesn’t need to be, and simulators can help you learn the process so that it takes away that fear.

Terms like limit orders, market orders, stop-loss limits, quantity, and the price will pop up when you place that first order. Most simulators will give you the same feel as a brokerage. This will allow the chance to learn what these terms mean.

Most simulators will have help or guidance that relates to these terms. Once you take the time to learn what they mean, as it pertains to your trades. It will give you the confidence that your know what you are doing when you place that first trade.

Let’s give you an example from my first trade. After I opened my first account and waited the required time for the funds to post to my account. It was finally the moment that I could place my first trade.

Nothing in reading about how to buy my first stock did it explain what the different terms meant that I would encounter. So, when I pulled up the first trade it asked

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