Introduction
The paper trading in futures and commodities markets is considered one of the best ways to gain trading experience without putting any of your money at risk. Most new traders face difficulties when they first enter the world of commodity trading, so it makes sense to give your trading skills a trial run first to see if you are ready to trade when you have real money on the line.
What is Paper Trading?
Paper trading is simply the process of making hypothetical trades as if you were trading with real money. The only difference is that you’re not putting your money at stake. As the name suggests, you simply write down buy and sell orders on a piece of paper and track how you would have performed if you were actually trading with real money. Of course, you can keep a continuous spreadsheet on your computer if you prefer that.
How to Get Started?
You should already have a detailed trading plan that outlines your entire trading strategy before you start paper trading. If you don’t have that, do some research, learn as much as you can about trading, and then put together a plan with your goals in mind.
After that, you will log your entry point if you placed a buy order. When the market reaches that price, you should consider it a filled order.
From this point, you should have your stop-loss order in the market and a good idea of where or how you want to exit the market. These orders need to be written down to keep yourself accountable. When your exit is executed, you’ll log the profit or loss you made on the trade. After a series of trades, you will start to see how you would have done if you were placing actual trades with a commodity broker.
Advantages and Disadvantages of Paper Trading
There is a difference of opinion among many experienced traders about how valuable paper trading is. Some say that it’s not completely realistic since you don’t have any money on the line. It’s a different game when you make actual trades because emotions can cloud judgment while fear and greed become your enemies. These points are valid, but the benefits of paper trading outweigh these drawbacks.
Paper trading provides you with the chance to get accustomed to trading and see if you’re on the right track before you jump in with both feet. It allows you to make adjustments to your trading plan before putting money at stake. Many traders often return to paper trading as a way to get back on track when they encounter difficulties. Overall, it’s not a complete experience, but it’s an excellent training tool and almost necessary before putting your money on the line in commodity trading.
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Source: https://www.thebalancemoney.com/paper-trading-learn-how-to-paper-trade-commodities-809363
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