Guide to paper trading

If you’re a beginner at trading, you have probably heard about paper trading but might not be 100% sure what it is or how it works. This trading mode has been quite a common way to practice for a lot of crypto traders out there, and has established a high level of relevance within the finance world. It is also called demo trading, so we will use the 2 terms interchangeable in the article.

What is Paper Trading?

This essentially involves buying and selling crypto assets in simulation mode. Its intention is to replicate real-world market conditions without putting your own capital at risk. 

You can think about paper trading as a car driving simulator, where you can drive in a virtual environment before you are eligible to drive in the real world.

You are using demo account funds to drive your trading strategy to success through the usage of an online cryptocurrency exchange or brokerage, and as such, aren’t putting any real money at risk.

You are usually required to use or connect to an online brokerage or exchange to access demo trading functionality. Even though trading is simulated, you need live data in order to make decisions on buying or selling your assets. What you usually need is at least the price of the assets and the order book; and it must be as up-to-date as possible.

You can access paper trading either in the form of a web-based trading platform or through a mobile/desktop tracking software that you will download and install on your device.

How to do Paper Trading or Open a Demo Account?

In order for you to be able to engage in paper trading, you need to open a trading account within a platform. In the majority of crypto exchanges and brokerages, this is referred to as a “demo account.” Search for this option and create your account first. 

1. Demo Account on the Exchange or Broker

A demo account gives you an amount of virtual crypto assets in the very beginning, where you can start trading by opening positions. The account shows market movements, mimicking real price. Hence, you can practice buying and selling and following position returns to validate and improve your trading strategy.

Your exchange is not offering you a demo account or do you need more advanced paper trading functionality? You can go with option 2.

2. Trading Platform That Offers Paper Trading Functionality on Top of the Exchange or Brokerage

This is an option that offers you the opportunity of exploring trading in simulation mode on top of any crypto brokerage or exchange out there from a single user interface. Additionally, you can use functionalities that are not available on the exchange.

Typically, there is also no requirement to make a deposit in order to gain access, as the platform comes pre-loaded with a specific balance. 

However, you need to know that you cannot withdraw any money gained by either of these options, as you were not using real money to trade in the first place. You were just using virtual crypto assets to test out trading strategies that will potentially prove to be profitable. However, they only will be profitable the moment you engage in live trading with them.

Think of paper trading as trying out free samples of a specific new food that’s on promotion at a supermarket. You can taste it for free, and it won’t cost you anything, but the moment you decide to buy it for yourself, you’ll need to pay for it.

How to use a Paper Trading Platform?

When it comes to crypto paper trading, you are essentially looking for a platform that will help you simulate trades. You need to find a platform that offers you a simulation on top of the exchange or brokerage in question. Specifically, these trading simulations are built using the order book and the real price from the exchange.


You can use charts like in live trading and buy or sell configurations that are similar with the ones used on a live exchange. You can use technical analysis to make your decisions, but in the end no money movements will be done.

Additionally, you will see charts about orders that are filled, canceled, and rejected. 


This allows you to test your trading strategy in current market conditions without having to stay in front of the screen the whole time. Another advantage of automated paper trading is that you can deploy multiple trading strategies in parallel easier and still have time to enjoy life.

An important feature for beginners is finding a paper trading platform that allows you to reset the account balance at any time, as this trading process will involve a lot of trial and error initially.

Pros and Cons for Paper Trading

Pros 👍
  • It helps you validate a trading strategy on the current market conditions.
  • You get access to trade analytics, and see the results trade by trade with ease.
  • You can validate multiple strategies and multiple assets risk-free.
Cons 👎
  • You aren’t using real money, so you cannot really make any withdrawals or earn money this way.
  • As you are not risking real money, you are not sure if your emotions will not mess up with your trading in real life.
  • Since you aren’t using real money, you can take risks that you wouldn’t otherwise consider. As far as investing goes, if you can’t imagine losing your money, you may not be ready for live trading.

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Paper trading vs. Live trading

  • In paper trading, you make stress-free trades and can really get creative with your strategies as a result. 
  • Paper trading does not account for order partial fills or for orders that are not filled at all and this can be a massive drawdown in real trading when you miss an important trade.
  • Slippage and commissions may differ in paper trading when compared with live trading. Make sure the platform you choose takes this into account and models it close to real world numbers.

How to Choose the Best Paper Trading Platform?

If you are looking for the best paper trading platform, ensure that it gives you a paper trading functionality that has analytics to validate your assumptions and works as similar as possible with live trading (data is not delayed, slippage is taken into considerations, order book is accounted for order fills).

Why Choose Vestinda as Your Main Paper Trading App?

  • you can build your own trading strategy first with an easy-to-use, no code strategy builder
  • you can backtest your trading strategy before using it in simulation mode
  • once you’re confident with your strategy, you can test your assumptions on any integrated exchanges by starting your strategy in paper trading mode with just a click of a button (no separate account in Vestinda, no paper trading account needed at exchange)
  • commissions are taken into consideration when calculating returns for paper trading 
  • data used is from the live exchange and is up-to-date (as much as the exchanges offer it) 
  • orders fills are modeled based on the real order book 
Updated on: October 18, 2022