What is Paper Trading in Crypto and Why Should You Do it?

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Before you do anything professionally, you need to practice and master the skill first. The same goes for trading, and is indeed more important because your success in trading depends on it.

The process through which you master trading skills is known as paper trading. Crypto trading is risky enough even for pro traders. It is 100 percent possible for you to lose all of your trading capital at any point in time. 

While this can happen to anyone, the chances are much higher for newbies who don’t have much experience in trading.

It is therefore important to learn the skill of trading before investing your money so that your chances of losing are much lower.

In this guide, we discuss what paper trading is, and the importance of using it to make your trading more successful.

How Paper Trading Works

Paper trading is just like real trading. The only difference is that you’re not using real money to trade. Instead, you use what is called paper money or pseudo money. 

This is money that you use to trade and see if you’re succeeding. You’ll lose the money if you lose in your trade and gain if your trade works out well. 

However because it isn’t real money, it doesn’t actually hurt your pocket. Instead, it gives you an idea whether you’re making progress in your trading skills or not.

This makes it the ideal place to test and try your strategies before you apply them to your live trading account. 

When you sign up for a paper trading account, you’ll get assigned the amount of pseudo money you need to start trading.

As you continue to perfect your strategies, you’ll notice a growing consistency in your gains, after which you can start with a live account.

Where Can You Do Paper Trading?

You can do paper trading on any p[latform that provides such an option. On TradingView, it is called paper trading, but it can be referred to as pseudo trading or by another name on actual crypto trading exchanges.

Almost every crypto exchange has what it calls a demo account. This is an account you can use to familiarize yourself with the trading platform without using your real money.

This gives you the opportunity to make all the mistakes you can make so that you’ll be prepared to trade with a live account.

Just make sure you treat the account as if it is a live account so that you give your best in the trading so that you actually make progress. 

Pros of Paper Trading

Paper trading has several advantages, which is why every newbie trader should use it. By using a pseudo account, you have a chance to make mistakes without actually affecting your pocket since the money isn’t your real money.

You’ll also have the opportunity to perfect your trading strategy and familiarize yourself with the trading environment which can be intimidating to a beginner. 

Also because the money is not real, you can relax and make trading decisions without emotions. This makes you a better trader than when you’re panicky about losing your capital.

Cons of Paper Trading

Paper trading is absolutely necessary if you wish to hone your trading skills in a secure environment without fear of losing your money. However, this doesn’t mean it eliminates your chances of losing. 

Although you can trade without any real risks, the experience is quite different when you trade with real money. Paper trading gives you a false sense of security that you shouldn’t allow to get to you if you wish to trade profitably.

Real trading is also far more complicated than paper trading. There are many more variables and real risks to deal with, making real trading an entirely different game altogether. 

However with paper trading, you get a good idea of what to expect in a real trade before you commit your funds to it. 

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