paper trading options guide

Paper Trading Options - The Secret to Riches

Paper trading options allow investors to trade risk-free in a simulated environment. A paper trading account can be employed as an excellent practice tool for developing your own trading strategy. Throughout this paper trade options guide, you will learn how to significantly speed up your learning curve and sharpen your trading skills.

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When you’re learning to trade right at the start of your trading career, it’s best to paper trade options first. Even though some traders may argue paper trading is not realistic enough since you don’t have that emotional connection you get when real money is on the line, opening a paper trading account can have its benefits.

Check out our profitable trading guide that teaches you how to trade stock options for beginner HERE.

Let’s first start and define what is paper trading, what are the paper trading pros and cons and last but not least how you can paper trade options without taking any risk with real money.

See below:

What is Paper Trading

Paper Trading is a simulated trading environment that allows traders to buy and sell securities without committing real money. Traders also refer to paper trading as simulated trading or demo trading. In addition to being 100% risk-free, you can also explore a diversity of tools to help you backtest your trading strategy.

Let’s now outline a few benefits why you need to paper trade options as a new or pro trader.

Risk-Free Account

Paper trade options

The first advantage that comes with paper trading options is the risk-free feature. You can find your edge in the market and find what works for you without putting real money on the line. You can try your trading system and refine it without losing any real money.

This trial and error process can slowly bleed your live account with small losses. The good thing about paper trading is that you don’t need to put your hard earned money and test your trading strategies.

Live Market Data

Paper trading options

The Thinkorswim paper trading is true to real as it gets because it’s tied to live market data. A lot of paper trading platforms will just take the end of day price, the opening day price or the average daily price and track your paper trades that way.

There is a smart way to check if your paper trading platform uses live market data.

For example, if you want to paper trade stocks and place an order for 1,000 shares of ABC stock, that stock actually has to trade 1,000 shares at your price for you to technically get filled on your paper trading order.

So, it’s very realistic!

As an alternative, if you want to get started day trading penny stocks click HERE.

Fine Tune Strategy

Paper trading account

To succeed in trading you don’t just need to find a strategy, that’s only half of the battle. You also need to fine-tune your options trading strategy. There is no need to waste real money to tweak your options strategy and later find that it’s worthless.

You can bring your options trading strategy where it needs to be by simply using a simulated environment. There is no need to have real money on the line while you’re tweaking your strategies.

Find more complex options trading strategies HERE.

Now let’s see what the biggest drawback of paper trading is?

Despite the advantages of paper trading, there is also one big disadvantage.

The cons of paper trading are that you have no skin in the game and you’re not risking any real money. When there are no emotions involved, since you don’t have an emotional connection to virtual money, as human beings, we tend to react differently.

Real money gives you anxiety every time you make a trade and you have to overcome that. However, you’re not going to be able to overcome that by paper trading.

A paper trading account won’t prepare you for the fear and greed complex situation and the fear of losing money.

Paper Trade Options

Options trading can be a hard beast to tame if you’re sure you’re doing things right. The good news is that the Thinkorswim paper trading account will help you master and hone your trading skills. Thinkorswim allows you to try their platform and experience paper trading free for 60 days.

Once you have a paper trading free account you can then apply the many trading concepts that we’ve taught you here at Trading Strategy Guides in any one of our trading tutorials.

To learn how to paper trade options we have put together this simple step-by-step options trading guide using the Thinkorswim advanced platform.

See below:

Step #1: Register for Thinkorswim paperMoney platform

Once you submit the form for your Thinkorswim paper trading account, you can click and install on your terminal the Thinkorswim paperMoney platform. This gives you a virtual margin account to practice paper trading options.

This is a free online trading account that has the capability to practice trading options.

paper trading options guide

It shouldn’t take you more than 3-5 minutes to fill out all the necessary information to get your TD Ameritrade practice account ready.

The one area that you need to be specifically careful with is what products you’re interested in trading. Just check them all off in order to ensure you have sufficient access once the terminal is set up.

Step #2: Download the Thinkorswim platform

Once you have submitted the registration form you can proceed forward and download your paper trading account. Simply go through the rest of the setup process by following the instructions in the trading application.

Paper trading options

Once your download is complete you can start practicing and experimenting with options strategies. The Thinkorswim platform should look like in the figure below once installed on your machine.

Paper trading account

It will indicate that it’s a simulated trading account or a paper trading account if on the upper-left corner of the platform you see the “Simulated Trading” tag. The negative thing with the Thinkorswim paper trading platform is that your data feed is delayed, which is indicated on the top left corner by the “Delayed data” tag.

Step #3: Open your first Paper Trading Options deal

If you want to gain access to options trading, you need to click the Trade tab that can be found at the very top of the Thinkorswim platform. Once inside the Trade tab simply type in your favorite paper trade stocks and it will allow you to see the options chain.

See figure below:

practice trading options

Once you click on the option chain you will be able to see the available call options and put options; the days till expiration and the implied volatility. If you want to buy a call option you have first to choose your strike price and then click on the "asking price" associated with the preferred strike price.

What is very helpful is that the Thinkorswim comes with a charting platform that you can use to better enhance your trading experience.

Conclusion – Paper Trading Account

In summary, everyone should try paper trade options if you still haven’t found your trading style or method, or if you’re looking to explore new trading strategies and trading ideas. Paper trading is also a great tool to build up your confidence. Trading is hard when you have money on the line and emotions start to creep in so building up your confidence can make a big difference.

Your goal as a trader should be to make the transition from paper trading to live trading as smooth as possible. Diving into the complex world of options without proper knowledge about this instrument can lead to serious losing trades. If you’re one of the doubters of paper trading we encourage you to give it a try and test new strategies before going with them on your live account. If you liked this article, check out our binary options strategy.

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paper trading options infographic

With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow.