It is pretty important to start paper trading before you even think about venturing out into the stock market world with your hard earned money. Regardless of who you are or how much experience you have in the stock market it can be a good idea to keep an active paper trading account for a couple of reasons.
1. You Don’t Risk Real Money
The biggest benefit of trading with paper money is that you are not actually risking any money by doing so. Even if you lose all of your money overnight on some foolish mistake you are still going to be all right. As a side note you also don’t make any money if you are right, but if you are just starting out you will probably have more road bumps then big victories anyways. That is where practice trading accounts can be big.
In other words you gained a learning experience without risking real money to do so.
2. Test New Trading Strategies
A second reason why you would want to open up a paper trading account is to simply test new strategies. Even if you have experience in the market you still need to test new ideas here and there and figure out new things. Opening a paper trading account allows you to experiment with new ideas without risking real money on “experiments”.
3. Gain Experience
One great reason to start with a paper trading account before you even think about opening up a real money account is to gain experience in the stock market. When you first get into the stock market you may find that it is not what you expected it to be.
Unless you already have experience in the market and know what works you are probably going to make a lot of mistakes to start off with. Why not paper trade beforehand to soak up as many “learning experiences” as possible before you start out.