A beginner’s guide to what is paper trading, its advantages, and disadvantages in crypto trading.

What is Paper Trading?

Paper trading, a common practice used in other trading markets, has established its relevance in the cryptocurrency markets as well. It refers to the act of practicing trading before testing out in the live markets. The concept of paper trading emerged with traders recording their hypothetical trades on hand to keep a track of profit and loss. With the onset of online trading platforms, the concept is not practiced using market simulators.

The practice of paper trading has gained prevalence in crypto trading markets as well. Beginners often use this practice to navigate the learning curves in cryptocurrency trading. This facilitates traders to understand the markets and practice without any risks. Cryptohopper offers one of the best paper trading simulators in the markets today. Paper trading in Cryptohopper has become one of the most notable features offered by the popular cryptocurrency trading bot.

In this article, we explore the advantages and disadvantages of paper trading, helpful tips, and how to access this feature on Cryptohopper.

Pros of Paper Trading

Paper trading offers an innovative way for traders to test their trading strategies in cryptocurrency markets without any risks of losing money. While results of trades are analyzed according to live conditions in crypto markets, they are practiced without investing real money. The advantages of leveraging it in cryptocurrency markets include:

  • Real-Time - Paper trading allows a trader to calculate their profit or loss by practicing in real-time markets.
  • Practice - It allows beginners to understand the schematics of crypto trading, movement in markets, and the effect of volatility in cryptocurrency markets simply by practicing trades in live markets.
  • Eliminates Risks - It facilitates novice traders to eliminate the risks of trading in crypto prior to understanding the market dynamics.
  • Strategies - It facilitates a novice trader to learn and gradually develop new trading strategies. It also enables experts to fine-tune their existing trading strategies by practicing in simulated conditions.
  • Eliminates Emotions - Any novice trader will face emotions including greed and fear for trading with real investments. By practicing multiple times, a trader can learn to rely upon a trading plan or strategy and eliminate emotions.

Cons of Paper Trading

  • Market Correlation - Paper trading fails to address the impact of the overall market on individual cryptocurrencies. The results of a paper trade may be caused by overall movement in crypto markets.
  • Slippage and Commissions - It often fails to capture the hidden costs associated with slippage and commissions while executing a real trade.
  • Reality - As it is practiced without real money, paper trading often fails to capture real emotions as when executing a real trade. While practicing with real-money, emotions may get better off a trader which results in cutting profits or high losses.

Tips for Simulated Trading in Cryptocurrency

While it certainly is a great feature for traders to access in different capacities, here are a few guidelines to be aware of.

1. Treat as a real account

Although practicing and familiarizing with crypto markets, a trader should adopt the same perspective as that of a real account. This includes investing the same amount of funds that you are likely to invest while trading with real money. This will ease the transition from paper trading to real trading.

2. Record results

Take note of trades, profits/losses, time duration, market conditions, and other factors so as to learn and improve while practicing.

3. Analyze results

Analyze the results of trades so as to build a trading strategy, improvise based on different market conditions, and learn from losses in trades.

4. Differentiate when trading on a real account

Whilst simulated trading is a great way to practice crypto trading, keep in mind the added factors of emotions, slippage, commissions, and liquidity at the time of trading with a real account.

5. Learn the schematics of the cryptocurrency market

Paper trading is an effective tool to navigate the schematics of crypto trading. However, one must also familiarize by educating themselves of crypto markets and not solely rely upon simulated trading.

Cryptohopper: Paper Trading

Cryptohopper offers an extensive set of features that help novice and expert traders, in different capacities, whilst engaging in cryptocurrency trading. Along with automated trading, traders can leverage a multitude of features including trailing stop loss, manual trading, mirror trading, backtesting, and more.

The platform also offers crypto paper trading so that beginners can understand the schematics of markets as well as automated trading in cryptocurrencies. Through the Paper trading account, you can trade on Cryptohopper without owning any cryptocurrencies or an exchange account. Experts can further trial and test their trading strategies prior to engaging in real-time.

Here are a couple of things that you can leverage using this feature of Cryptohopper:

  • Free simulator - With a paid subscription, a trader receives a free simulator. You can use real-life exchange data with simulated crypto.
  • Deposits - The simulator gets connected to public data and not your actual exchange account. A trader can practice with deposits up to 100K in their preferred cryptocurrency token.
  • Real-time experience - Paper trading on Cryptohopper allows you to engage in the real-time experience of connecting to exchange, selecting a crypto trading template, deposit fake crypto tokens, and more.

Bottom Line

Paper trading is certainly one of the useful instruments to leverage in crypto trading. It offers advantages of practicing for novice traders along with forming new trading strategies for expert traders. All in all, it offers a great way to practice the charting waters of crypto trading and learning how to swim.