Virtual stock trading or paper trading is a simulation of the actual trading process that lets people practice the trade without having to risk any money. Like the principle of computer games, the paper trading gives a good feel of the actual scenarios happening in the market. However, since it is a simulation not everything could be happening in reality. One's success rate, for example, is only an approximation of how well a person could handle his live trades.
Lack of realistic emotional risk level, The person using this type of "training" has no emotional involvement that is normally felt in actual trading. Once a person's emotional state is challenged, he will likely make decisions that are entirely different from situations where he does not feel any emotional stress. It is a common knowledge that trading is 15% skills and 85% emotions. Depending on a person's capacity to keep his emotions under control, he will either lose or win his trades. Obviously, it is very different in a simulated environment.
Zero risk, The most important component in trading is the risk capital and this is the very thing that paper trading lacks. Since it is basically a "game" and people "playing" in it use paper money or virtual money. They do not feel both the risks and the rewards present in the trade.
However paper trading has its primary advantage of practicing the trade. Since your shares are not actually registered to the market, they are not considered as parts of the exchange therefore you do not have to run the risk of losing your shares which comes in high probability when you are still in the familiarization stage. Some trading software includes simulation which allows the trader use the same software as he would in actual trading. This gives him a good environment for practicing his approach and skills.
To solve the problem of unrealistic paper trading, you can do the following:
Have someone to compete with. Competition will lead to two things: adrenaline rush which could heighten your emotionality while trading and the need to perfect your skills while earning higher profit in comparison with your paper trading partner. This will increase the educational experience.
Learn as much as you can. Don't stop training in paper trading as long as you are not comfortable with your trading skills. Many people think that simulation is still better than going into the live trade with no idea to back you up.
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