Little Known Ways to Successfully Paper Trade Options

Whether you’re just starting out with your trading career or you’re a seasoned trader, you should know about paper trading and use it to develop a paper trading options trading strategy. This is essentially a way to trade in a simulated environment to hone your knowledge and skills. There are obvious benefits to new traders—they get to learn the market without any real risk. Veteran traders can benefit as well by testing new strategies or trying different kinds of trades. Hesitation or experimentation can be a killer on the real market, but paper trading is not so harsh.

Types of options

 Simply put, options are contracts where one party sells another the right to buy or sell an asset for an agreed price. These can include stocks, bonds, commodities, currencies, and more. Some basic strategies include call and puts. A call strategy believes that an option price will go above the premium, meaning it’s better to hold off on selling. A put strategy bets that the price will fall below the premium, which makes buying later the better choice.

Of course, those are just some bare basic concepts of trading strategies. These concepts are implemented in advanced strategies that can involve specific calendar dates, long term holding of options, or rapid day trading, just to name a few possibilities.

Signs of a good platform

To get the most out of paper trading, you’ll need to find a platform that gets as close to the real thing as possible. You’ll want a platform with effective research tools and one that’s consistently updated with real market prices to get an accurate idea of how different trading strategies really work.

You’ll need to find a platform with customizable analytics tools so you can experiment with new technical indicators and chart types. You’ll also need a platform with an easy-to-use interface that allows you to learn more about what’s going on in front of you. A confusing interface will offer far more frustration than educational value, so you’ll need to look around for one that fits your needs.

Perhaps most importantly, you need to find a platform that uses accurate market data and offers a realistic user experience. Practicing your trades from old data won’t offer much in the way of practical applications, and a platform that seems too easy won’t do anything to prepare you for the risks of putting real money on the line.

What platforms are best?

This will be largely a matter of opinion, but there are a few platforms that are easy to recommend to any new paper trader. Many experts seem to agree that Thinkorswim is the overall closest platform to reality. This platform uses live market data and allows users to set strategies in advance based on predetermined rules. It also contains tools that allow users to automatically enter and exit certain options based on their criteria. Having a TD Ameritrade account gives paper traders two separate accounts with over 400 technical indicators to experiment with.

eOption requires a real investment to open an account, but it offers a fully customizable layout as well as a probability calculator for trades. Perhaps more valuably, though, it offers reasonably-priced brokerage services for traders. Brokers can easily increase your odds of making successful trades, and their success is directly tied to their clients’, so you can rest assured knowing they are invested in you.

Ultimately, paper trading can help you learn and practice unfamiliar concepts, but there is no replacement for the emotional connection of real trading. With no risk, many people will overinvest in paper trading and take risks that simply aren’t realistic. In reality, consistency in your trading is the most important thing, and this is something that must be learned with real experience.