What is Bitcoin paper trading?
Trading, especially cryptocurrencies, is a not as easy as it seems and it needs to be practiced a lot. Unless that is the case, the traders are simply gambling or speculating, which can hardly make any money in the long run.
One of the best ways anyone can start with trading is to use a feature that most of the exchanges offer for free and that is paper trading. What it is, what advantages and disadvantages it has and why should mainly the new aspiring traders try it? That is something that will be explored in the following paragraphs.
What is Bitcoin paper trading?
Bitcoin paper trading is a process, in which, mostly the new beginning traders trade in a demo account. It is called paper trading, because back in the days, the traders who did not have any trading accounts only wrote their trades down on a piece of paper.
Yet, in the modern world, the traders have the ability to trade “fake money” at an exchange, without actually having to deposit money to an account. This means that any good and profitable trades do not lead to actual profits as the money in the account is not real. But this also means that losses which might occur in the process do not get written down from the account.
In the modern world of cryptocurrencies, Bitcoin paper trading option is offered by almost any cryptocurrency exchange or platform that offers buying and selling of the cryptocurrencies. This also applies to BingX, which offers free crypto paper trading thanks to VST (Virtual USDT).
Advantages of paper trading
Paper trading definitely provides benefits especially for beginners of the trading world. While it also has clear disadvantages, let’s first explore why anyone should try paper trading before live trading their accounts.
1. No money involved
Probably the most obvious benefit of paper trading is the fact that there is no involvement of money. This means that there is no pressure and stress that is put on the trader, which means that the key goal of the trader is to concentrate on the trades themselves.
Moreover, this also means that any mistake, wrong trade or poor execution of the trade will not result in the loss of money. It can only lead to a new lesson that is free and that can provide more experience for the future trades that will be live.
2. Strategy development
While paper trading is mostly beneficial for beginners, this advantage of paper trading will definitely help the more advanced as well. Paper trading provides an ideal position for traders to develop and test their strategy.
This step is very important, as without a clear and well-developed trading strategy that the traders are following, the trading becomes only a gambling and speculation. In this stage, the traders want to explore which indicators work for them, what time frame or asset class they want to trade.
All of this should then be incorporated into a strategy, which should also include risk management and money management that the trader is comfortable with. Next step would be figuring out how to approach take profits and stop losses, which all should be part of the development of the trading strategy.
3. Builds confidence
In many areas of life, confidence is key. The same applies in trading. Obviously, traders should not be overly confident without their strategy or be too proud to admit a mistake. However, they need to trust their trading strategy and need to know when and how to execute.
Having the right mindset and the ability to trust what they are doing is very important. Traders need to take the trades whenever they align with their strategy, which means that they need to be confident enough in their strategy, yet not so cocky to be overconfident or too egoistic to not be able to admit a mistake or a poorly executed trade.
4. Completely free
Most of the trading platforms and brokerages offer this type of service completely for free. That means that the aspiring traders have the chance to try their strategies, confidence and trading abilities completely without any cost, making it much more desirable and reasonable to try.
Disadvantages of paper trading
Yet, paper trading is not only beneficial. It has its own drawbacks that the beginners in the trading world need to definitely take into account. If they do not, these things can surprise them once they start trading a live account.
1. No emotions involved
One of the biggest differences between paper trading and live trading is the absence of emotions. With paper trading, the traders are not emotional as there is not real money involved. However, once the account is live, the trader will start to feel the difference, especially when it comes to fear and greed.
These two emotions can single-handedly ruin any trader, because they affect the behaviour of the trade. Emotions in trading are rarely a positive thing as most of the time they lead to breaking of the strategy, which was set. Once that happens, the trader will be surprised how fast their trading account can blow up.
2. Absence of slippage and commissions
Another drawback of paper trading is the fact that it does not include the slippage and trading commissions. This means that in theory and thus in free crypto paper trading, the trade is always entered at the time when the trader decides to do so. In practice however, it is not that simple. Sometimes the trade is filled a lot later or at a different market price, which means that the trader does not earn as much as in the paper trading.
Moreover, with each trade made, there are some trading commissions incurred. While these are absent in the paper trading, in the live trading they are very real. That means that investors need to adjust their positions to make sure that they also “earn enough money” to cover their trades and still be as profitable as they expect.
3. ‘Too perfect’ a world
In general, the disadvantage of paper trading is just a pure fact that it is too perfect. Real life trading is a difficult and very complex work which encompasses countless different aspects such as psychology, money management, risk management, execution etc. In the world of paper trading, many of these are omitted, which can later on become very costly for those, who have had very promising results in the paper trading.
Why should the beginners start with Bitcoin paper trading?
While we have just mentioned some of the disadvantages of paper trading that does not necessarily mean that the benefits of it are not prevalent. On the contrary, mostly to the newcomers and beginners in the trading world, Bitcoin paper trading has a lot to offer.
Other than the previously mentioned advantages, when it comes to free paper trading of cryptocurrencies, beginners can experience the volatility of the market. How fast and violently it can move and what that can bring to someone, who tries to trade those positions. That, amongst other advantages, is definitely a reason why all the new traders should definitely try Bitcoin paper trading before they decide to live trade.
Trying a free paper trading of cryptocurrencies before entering a live trading account can save the traders some money from unnecessary losses. Yet, there is a difference between Bitcoin paper trading and live trading, which the traders need to take into account.
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