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Paper trading: how do I start a free paper trading account?

Paper trading is a way of practicing trading strategies without risking real money. Paper trading accounts can also be used to backtest​ or verify trade ideas. In this article, we explore how to get started with paper trading, as well as how to transition from trading fake to real money.

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What is paper trading?

Paper trading provides new and experienced traders a way to learn about new markets, test out strategies, or familiarise themselves with a trading platform without risking real money. The paper trading account is funded with a balance of virtual money, such as £10,000, but it’s traded like real money. Profits and losses are calculated as if this was real money, so you can track your progress while learning how everything works.

Paper trading gets its name from when people used to write down trades to practice instead of actually trading them. Software today allows traders to place trades without risking (or making) any money.

How do I start paper trading?

  1. Open a free paper trading account (also commonly known as a demo account), which will provide £10,000 in virtual funds to practice with.
  2. Choose your product between spread betting and CFD trading. Spread betting is tax-free in the UK*, whereas CFDs are available globally
  3. Enter your email to receive information and activate your account and then create a password.
  4. Follow the email instructions on accessing the trading platform or trading app with your email and password. Your demo account will then be fully activated.

What are the benefits of paper trading on our platform?

Paper trading on our Next Generation trading platform​ provides the opportunity to practice without risking real money on thousands of different trading instruments.

  • Get access to real-time quotes in all markets, including share baskets, commodities, forex pairs, forex indices, indices and treasuries. Please note that you will only have access to stocks on a demo account for one month, after which you must activate a live account and deposit funds to continue.
  • Paper traders have access to more than 80 technical indicators and chart overlays to aid in their trade analysis.
  • Our platform also has built-in pattern recognition​ that can automatically highlight technical patterns, such as head and shoulders, wedges and triangles.
  • Order entry types include market, limit and stop-limit orders. Easily attach stop-losses and profit targets to orders when placing a trade using the order ticket window.

Discover more platform features​ that can be used with a paper trading demo account.

What are the advantages of paper trading?

Here are the benefits of paper trading, whether you’re a new or experienced trader:

  • You can improve trading skills. Every trader needs to learn how to correctly – and quickly – place orders, as sometimes trades need to be swiftly made when the price is moving. This is especially true for day trading.
  • There’s the ability to learn platform tools and functionality. When it comes to getting to grips with any new piece of software, it takes time to become proficient with the tools and functions available within the platform or app. While paper trader software is user friendly, there is still a learning curve. It may be better to make mistakes with virtual money instead of the real thing.
  • Trading strategies​ can be tested. The paper account is used to trial trading ideas on current or past price data. You can see how a strategy would have performed if certain buy and sell rules were used and alter the strategy to look at how the results differ.
  • The paper account provides data that goes back months, years, and sometimes decades. As discussed, you can go back and see how buy and sell rules would have performed on prior price moves. This can be done anytime – even when a given market is closed.
  • Real market conditions can be simulated. A paper trading account will tell you whether you got in too late or too early, or whether you made or lost money. It is like live trading, except your wins and losses aren’t real. Yet, you can treat them as such to give yourself an idea of how well you are trading over time.

What are the disadvantages of paper trading?

  • Paper trading won’t always replicate the exact market conditions that traders face in the live market.
  • Paper trading may not replicate market liquidity. For every trade, there’s a buyer and seller. In a paper trading account, we’re pretending to buy or sell, but the transaction never actually takes place. In live trading, everyone’s orders have an impact on the market. In live trading, this can result in slippage — a difference between the price we expect and the price we actually get. Slippage is a cost that will typically be greater with live trading than what we see in a paper account.
  • In the real market, multiple people may try to get into a position at the same time, yet only one person may be able to enter at a certain price. This means that others didn’t get the position they wanted because they were seconds too late. The paper trader typically gets the position they want — because no actual trade is taking place — but they may not have been able to get the same trade in the real world.

Due to these disadvantages, we can assume that paper trading profits will be slightly smaller, and losses slightly bigger, when compared to live trading.

Paper trading vs trading real money/a live account

A live account is likely to create stronger emotions — which may affect trading decisions — than a paper trading account where nothing tangible is made or lost.

Paper trading typically doesn’t replicate the emotions of making or losing real money. Holding a trade for a big profit or getting out of a losing trade may not be as easy when emotions and real money are involved. Handling those emotions comes from the experience of live trading.

It may be harder to have strong feelings when it comes to fake money, yet it’s easy to get emotional over real money and tangible profits and losses. Therefore, risk-management​ is so important. Professional traders may utilise stop-loss orders and position sizing to ensure they’re comfortable with the risk they’re taking, which helps to keep these emotions under control.

It’s also worth considering that real-world trading doesn’t provide do-overs. A missed opportunity is gone, a bad trade means money is lost. In a paper account, many traders may not care what happens, which may lead to bad habits because the results don’t matter.

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How long should I paper trade for?

At a minimum, consider paper trading until you feel comfortable with the trading platform and placing orders without mistakes (buying instead of selling, or trading the wrong amount, for example). There is no point losing money on trivial mistakes that could have been avoided with a bit more practice in the paper trading account.

Once familiar with the platform, consider staying in the demo account until you have found success with the trading method you are using. Losing money in the paper account doesn’t bode well for making money with live trading. If you achieve consistent profitability, then you could consider switching over to real-world trading.

Paper trading vs backtesting: what’s the difference?

Paper trading is trading real-time market conditions with fake money, whereas backtesting is seeing how a strategy performed on historical price data by applying buy and sell rules.

Backtesting is often done in a paper trading account, or with backtesting software, but could be performed on any chart showing historical data. Backtesting is useful for refining strategies, since many trades can be simulated based on price moves that have already occurred.

Paper trading is useful for getting acquainted with a platform and learning to take trades in real-time (possibly with a strategy that was backtested).

Does past performance guarantee future results?

Nothing can guarantee future results as the future is unknown. Even a well-practiced and/or backtested strategy may not work well because conditions may be different to how they were in the past.

How do I change my paper trading account to a live account?

In our Next Generation trading platform, click on “My Accounts” along the left-hand side. There, you will see your current paper trading demo account along with steps to transition to a live account.

Click the “Apply Now” button. This will bring up the application form, which you can fill out and watch your emails for details related to your live trading account. Once the account is approved, you can deposit funds and then begin trading on your live account, using the skills learned in your paper account.

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Can I paper trade on the stock market?

You can paper trade on the stock market, although share trading is only available for a month before you must switch to our live account. Yet, in the paper account, you also have access to a wide range of more than 100 share baskets and stock indices to trade on. Read more about our shares offering.

I’m an experienced trader — how can paper trading help me?

Paper trading has multiple uses. Many experienced traders revert to a paper trading account to test out ideas and practice new strategies they develop, especially when trading on a new platform. Learn more about our Next Generation trading platform features.

What are the benefits of a paper trading account versus using Excel?

Typing hypothetical trades into Excel is another form of paper trading, just like writing them down on a piece of paper. All are viable, although these methods do not provide the skill and practice of actually placing trades on a platform. This is a requirement if you intend to eventually place them in a real-time account.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

*FSCS is an independent body that offers protection to customers of financial services firms that have failed. The compensation amount may be up to £85,000 per eligible person, per firm. Eligibility conditions apply. Please contact the FSCS for more information.