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What are the Different Types of Paper Trading Software?

By Dana DeCecco
Updated Feb 29, 2024
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Different types of paper trading software provide the investor a myriad of choices. The different types may be used for different purposes. Software features will vary with the different types of programs. These various features may include data feeds, charting programs and back testing capabilities. Different types of paper trading software may be used for practice trading or system development.

One type of trading software will allow the investor to practice trading without an investment of risk capital. The software might include a virtual trading account funded with virtual funds. This type of paper trading software is available from online brokers dealing in stocks, options and some commodities. Many foreign exchange brokers, or forex brokers, offer virtual trading accounts used for paper trading.

Paper trading software might include various types of data feeds. Some include intra-day data, and some might be end-of-day data only. The type of data needed depends on the style of trading. End-of-day data would be suitable for long-term investors and investors trading dividend-paying stocks. Short-term traders and day traders might require intra-day data feeds.

Charting programs might be included with paper trading software. Charting programs are an invaluable tool for the visual analysis of markets. Various indicators can be used in the development of a trading system. Many indicators will be available in the charting software. Some software packages allow the investor to trade directly from the chart.

Paper trading software might include back testing capabilities. Back testing is a valuable tool for system creation. The best way to try out a new idea is by using historical data. Back testing software uses historical data to implement a trading system or idea. This type of software allows the investor to go back in time and try out a new system.

Some paper trading software might have the capability of being converted to live trading. The software can be connected directly to the broker. As the buy and sell signals are being created, the orders are automatically sent to the broker, and the trades are initiated.

Expenses can be incurred for the cost of the software and the cost of the data feed. Some paper trading software includes a free data feed with the purchase of the software. Many brokers offer free software with an active account. Software providers offer simulated trading platforms at various prices. Some programs will require payment for the software, the data feed or both.

Simulated trading can be used by novice traders to sharpen their trading skills before risking real money. Paper trading software also can be used by experienced traders for system development. Testing a new trading idea might best be accomplished through simulated trading before risking capital. Professional traders use paper trading software to develop and fine tune their systems.

Before acquiring paper trading software, the trader should make sure it offers all of the features needed to accomplish the goal. Whether the goal is practice trading, system development or automated trading, this software can be a valuable tool. Simulated trading can be a valuable trading tool for the novice as well as the experienced investor.

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