Monday, October 03, 2005

Paper risk

Paper Trading: Waste of Time or Valid Learning Method? by Vadym Graifer
Numerous discussions of paper trading, and its value as a learning tool, usually see participants divided into two camps. One claims total uselessness of paper trading, another vows never to start without it. The scoffing camp points out the obvious limitations of paper trading:
It doesn’t allow you to estimate slippage during your execution.
It leaves unanswered the question of whether your order has a chance to be executed at all.
It keeps you in a relatively relaxed state of mind as there is no pressure of endangering real money.
It also doesn’t allow you to master your order routing tools in full.
Finally, it’s very easy to cheat oneself, changing one’s decision after the fact and booking corrected results.