Paper Trading: Definition, How it Works, Platforms, Advantages, Limitations

Paper trading, also known as stock market simulation, refers to the practice of simulated trading to hone investing skills without putting real money at risk. Paper trading provides novice investors with an invaluable means to gain experience and test strategies in a risk-free environment. 

The main advantages of paper trading are that it helps in building confidence through practice, and the main limitation is the lack of real money emotions. They compare paper trading and live trading, advising new traders to leverage paper trading to prepare for actual markets.

It is recommended that traders treat the simulation as close to real trading as possible. Platforms in India like Zerodha and TradingView offer robust virtual environments. While not a substitute for live trading, paper trading is essential for traders to learn the ropes and avoid costly mistakes when starting out.

What is Paper Trading?

Paper trading is a simulated form of investing where no real money is used. Paper trading allows investors to practice executing trades without any financial risk. Paper trading allows investors to test strategies before investing actual money. The term “paper trade” originated from investors writing mock trades on paper before making real trades. Now, paper trading is commonly done through online simulators that mimic actual trading platforms.

How to Start Paper Trading?

To start paper trading, the first step is to open a virtual trading account with an online brokerage that offers paper trading services. Many tools like TradingView, Sensibull, and Zerodha allow users to open free paper trading accounts to practice trading stocks, options, or forex without risking real money. After setting up the virtual account, treat it as you would a real brokerage account by deciding how much virtual money to deposit as your starting capital. Consider starting with a considerable amount of capital to make the experience more realistic. Conduct market research using real-time quotes, charts, and tools to find trading opportunities. Execute trades by buying and selling assets, just as you would with a live account. 

Which Instruments can be traded in Paper Trading?

Instruments that are traded in paper trading include stocks, options, currencies, and futures contracts. The virtual portfolio in paper trading usually allows you to trade the same assets available for trading in a real brokerage account. Paper trading accommodates trading most of the major asset classes and financial instruments that are available in live markets.

What are the Best Paper Trading Platforms in India?

The best paper trading platforms in India include TradingView, Moneybhai, Neostox, Zerodha Kite, Sensibull, NSE paathshala, Investopedia simulator, Chartlink, and Frontpage. Below are more details.

1. TradingView (Free and Paid)

TradingView is a prominent global charting and trading platform. Its virtual trading feature allows users to trade with Rs. 100,000 of virtual funds. Key features include the following.

• Advanced charting tools like indicators, drawing tools, custom layouts etc.
• In-depth market analysis with live ticker, news, economic calendar etc. 
• Trading from charts on US, Indian and other global markets
• Customizable layouts, alerts, widgets and templates
• Powerful trading community with chat rooms and live broadcasts
• Compatible across devices web, desktop apps, mobile apps

TradingView offers a realistic paper trading environment leveraging its superior charts and community. The free account provides ample features for practicing trading.

2. Moneybhai (Free) 

Moneybhai by MoneyControl is a popular free virtual stock trading platform in India. It credits Rs.1 crore virtual money to practice equity, derivatives, currency and commodity trading. Features include the below.

• Virtual trading on NSE, BSE, MCX, NCDEX 
• Supports equity, F&O, currency, commodities, mutual funds
• Real-time market data and news
• Detailed portfolio statements and ledger
• Forum discussions and trading ideas  
• Single stock futures, cover orders, basket orders etc.

Moneybhai focuses on the Indian market and provides a realistic experience. The virtual funds allow extensive practice across segments.

3. Neostox (Paid with free three day trial)

Neostox offers a virtual trading platform to practice trading on real market data without risks. Key aspects are below.

• Virtual trading on NSE indices, equity, derivatives and currency
• Rs.2 lahks virtual capital credited
• Live market ticks, depth, charts and indices data
• Supports a variety of order types like SL, cover order etc.
• Detailed reports on portfolio, positions, ledger etc.  

Neostox’s virtual platform accurately simulates its live trading environment using real-time data. It is ideal for practicing intraday and positional trading on NSE before going live.

4. Zerodha/Kite (Free)

Zerodha is India’s largest stock broker. Their dashboard and app offer paper trading facilities alongside actual trading accounts. Highlights are as below.

• Paper trade on equity, F&O, commodity, and currency segments
• Virtual Rs.10 lakh funding credited 
• Real-time streaming quotes and charts 
• Place bracket orders, cover orders, SL, target profit etc.
• In-depth analytics on positions, holdings, margins etc.
• Switch easily between paper and live trading

Zerodha’s paper trading feature mirrors real account conditions. It is suited for traders wanting to experience Zerodha’s trading platforms before opening live accounts. 

5. Upstox (Free)

Upstox provides virtual trading integrated within its Pro Web trading platform and mobile apps. Key attributes are as below.

• Paper trade across NSE, BSE equity, derivatives, currencies
• Rs.10 lakhs virtual capital credited
• Live market watch with charts, technical indicators, drawings
• Analyze positions, holdings, collateral, margin utilization 
• Stream, place and analyze trades side-by-side

Upstox recreates its actual trading environment for practice. Traders can seamlessly transition between paper and live trading accounts.

6. Sensibull (Freemium) 

Sensibull focuses on options trading. It allows practice trading on live market data. Features include the below.

• Paper trade options strategies CE, PE, spreads, combos etc.
• Virtual trading funds of Rs.5 lakhs 
• Greek calculators, pay-off analyzer, P&L charts etc.  
• Strategy builder with filters like margin, liquidity etc.
• Intuitive visualization of options strategies
• Available as a web platform and mobile app

Sensibull offers robust tools tailored to options traders. The virtual trading closely replicates real options trading in Indian markets. 

7. NSE Paathshala (Free)

NSE Paathshala is NSE’s education platform offering paper trading via its Stockal game. Key features are listed below.

• Virtual fund of Rs.1 lakh for practice trading
• Real-time market data on NSE and BSE
• Supports equity, derivatives and currency trading
• Leaderboard to compete with other traders
• Detailed portfolio analysis and reports
• Integrated training material and videos 

Stockal makes virtual trading fun and collaborative while learning. Traders can compete with others and track progress.

8. Investopedia Simulator (Free)

Investopedia is a leading finance education website. Its trading simulator allows virtual practice across global markets. Highlights are as follows.

• Trade stocks, forex, futures, CFDs, crypto
• Live price data and news feeds
• Customizable watchlists and alerts
• Portfolio performance tracking 
• Leaderboards, trophies and certificates

Investopedia is suitable for traders wanting to practice across diverse global markets alongside learning trading skills.

9. Chartink (14-day free trial)

Chartink offers a feature-rich paper trading platform focused on the Indian market. Key aspects are below.

• Virtual trading on NSE, BSE across segments 
• Rs.5 lakh initial virtual capital
• Live charts, level 2 data, risk management tools
• Backtesting trading strategies 
• Curated scanners, screens and watchlists
• Available as web and mobile platforms

Chartink provides an advanced environment similar to that of trading terminals. It is useful for thorough practice before live trading.

10. Frontpage(Free) 

Frontpage is a virtual trading platform focused on Indian markets. Highlights are listed below.

• Paper trade equity, derivatives, currency pairs
• Live market data, charts, scanners, screener
• Margin calculator, strategy builder
• Detailed portfolio analytics and ledger
• Available as a browser-based web platform

Frontpage offers a realistic simulation replicating Marwadi’s actual trading platforms. Traders can test-drive its tools before opening accounts.

Considering the risk-free benefits, every trader should utilize paper trading before committing hard-earned capital.

What are the Advantages of Paper Trading?

The main advantage of paper trading is that it helps learn trading through realistic simulation.

• It allows you to learn trading basics and strategies risk-free, without losing real money. You can practice extensively and make mistakes without financial consequences.
• It helps build confidence and experience before venturing into actual trading with real capital. The simulation prepares you for real market conditions.
• You are able to test and experiment with different trading techniques, tools, platforms, and strategies in a safe environment before using them with real accounts. 
• It enables you to understand market dynamics and price movements without risking money. You learn how news and events can impact securities.
• You are able to practice trading across asset classes like equity, derivatives, commodities, forex etc. using virtual funds. This helps you identify your preferred markets.
• It allows you to test theories, ideas, methods learned from books, courses and mentors without committing funds. You will be able to  review their applicability.

Paper trading’s realistic replication along with the absence of risk provides advantages for traders at all skill levels.

What are the Limitations of Paper Trading?

The main limitation is that paper trading uses simulated money so it does not capture the emotional realities of trading actual capital. The absence of real monetary gains or losses can lead to complacency and unrealistic risk-taking. Market conditions may also be inaccurately simulated without nuances like order delays, liquidity constraints etc. Successful paper trading performance sometimes create overconfidence about replicating the same in live markets. Additionally, paper trading strategies tend to be simplistic and do not account for complex real-world dynamics. While useful for gaining experience, paper trading has clear limitations in fully reflecting the challenges of live trading. Traders should be aware of these constraints and not entirely rely on paper trading results before committing real capital. 

How Paper Trading can improve your Live Trading?

Paper trading help improve live trading as it allows you to practice and test strategies risk-free, building confidence and experience before committing real capital. It helps you understand market dynamics and price behavior without financial risk. Paper trading provides feedback to identify weaknesses and fine-tune your skills, helping avoid costly mistakes when live trading. The discipline developed in simulated trading transitions well into managing emotions when actual money is on the line. 

Is Paper Trading Legal?

Yes, paper trading is completely legal since it involves trading virtual money and securities, not real funds or assets. Paper trading leverages simulated market data and environments offered legally by brokerages and financial websites for educational purposes. There are no laws prohibiting paper trading given its risk-free nature using fake money and positions.

Is Paper Trading Free?

Yes, paper trading is usually available for free from brokerages and third-party platforms as it helps attract new customers. Leading trading platforms like Zerodha offer free paper trading services alongside actual trading accounts. While some advanced simulators charge subscription fees, basic paper trading capabilities are free as part of educational offerings.