The word “Bitcoin” made the world go frenzy in 2016-’17 when people realized they could make amazing profits if they’re willing to risk an investment in this highly volatile asset. One bitcoin (BTC) was worth $604 in September 2016, and within one year, it skyrocketed to $4000+. Continuing the growth trend, Bitcoin hit the $50,000 mark for the first time in February 2021.
The crypto market is now flooded with cryptocurrencies. Most of these were introduced in the last five years. So, it is difficult for a novice to plunge in the right direction.
Over these years, however volatile they are, cryptocurrencies unlocked success in establishing themselves as an asset class. People can invest and earn significant profits out of it, like regular stock markets. And the possibility of substantial profits over a short time has pushed investors to leap aboard the crypto bandwagon.
With many people lurking to become the next Roger Ver (the Bitcoin Jesus), the journey to cryptocurrency investment must have an element of caution.
The market is extremely volatile, meaning wide price fluctuations coupled with heavy trading make it almost impossible to predict the next change. Also, unlike the regular stock market, where you can make assumptions out of news and changes in the company workings, the cryptocurrency market works a bit differently.
So the question is — should you invest your real money when you are just starting up? If you think it is too risky to start trading with the real currency, try paper trading.
What is Paper Trading?
Paper trading is a great back-testing technique that simulates real-world trading using virtual paper currency. Paper trading enables prospective investors to gauge various financial products and techniques without risking their real money.
For cryptocurrency enthusiasts, this method is useful. They can record all transactions and keep track of hypothetical portfolios, market activities, and simulated profit & losses.
One of the ways to ensure you’re paper trading the right way involves using any of the well-established crypto paper trading apps.
A consistent engagement on such platforms can boost your confidence to start investing real money in the crypto market.
How to start with the Paper Trading Account?
Step 1: Begin by opening a demo account with any of the brokers.
Step 2: The broker will provide you with the digital currency to transact.
Step 3: Set up a small limit on your demo account to understand the risk ratio.
Step 4: Identify potential cryptocurrencies that can give you high rewards.
Step 5: Invest digital currency in any cryptocurrency and track your performance with a paper trading account.
When it comes to virtual accounts, you have many choices for learning bitcoin trading. Go for the one with a UI that resembles a real cryptocurrency trading platform and offers higher leverage while trading.
Another way to master the art of crypto trading with the paper trade method involves practicing smart crypto contracts. These contracts play a crucial role in automating the process to control, execute, and even document legally significant events around the transaction. Start with buying and selling cryptocurrencies by using functions like stop-loss for the placed orders.
Pro tip: scan as many paper trading apps as possible and choose the one that offers the highest virtual trading money. This way, you will learn how to set the stakes before investing.
Although these are virtual money, trade carefully, as this can become a habit wherein reckless spending limits your learning curve.
Quick Tips to make the most out of your Paper Trading Account
Once you are thorough with the concept of Paper Trading, it is time to get hands-on expertise. Follow these tips before you kickstart your paper trading journey to get into the nuances of crypto trading right.
Trading without the risk
Paper trading is useful in mitigating market risk by experimenting with various investment strategies. Moreover, trading in a virtual environment without risking real money has a much different feeling for prospective traders.
The absence of risk can help understand the market volatility and check for the swings without losing anything. Leverage paper trading to overcome the psychological factors like greed and fear associated with the real investment.
Treat it as a proper real account
A crypto investor would need a willing suspension of disbelief and treat the paper trading account like a real one. It should serve as a safe launchpad to start trading using a real account.
Remember, one of the key factors missing from paper trading is emotion. The real account will have the emotional investment that goes with the hard-earned money.
Not treating the dummy account as a real one could jeopardize your investments when making a buy/sell call in a real money investment.
The idea is to experience the thrill and highs-and-lows of investing without risking anything, and therefore, treating paper trading as real trading is key.
Pick up the market learnings
It is better to practice hard on a demo account and acquire as much market knowledge as you can. You can access a plethora of free cryptocurrency resources online and get a firm hold on the market before choosing your cryptocurrency trading platform.
Implement your knowledge of crypto learning in the dummy account and gain the necessary confidence before you start trading.
Remember, cryptocurrency trading is not everyone’s cup of tea. It is the reason why there is the concept of paper trading. Setting up and practicing in a paper trading account would help you identify if crypto trading is right for you.
The path to wealth accumulation is slow and steady, and there are still far too many unknowns in the world of cryptocurrencies. And even if you are using a paper trading account, treat it as a real account and always begin with modest investments.
It is highly recommended to thoroughly research the market yourself instead of mindlessly following anyone’s suggestions.
Bio – Harsh Agrawal is the Founder of CoinSutra, an online resource helping everyone to learn about decentralized finance and get started with it. Harsh is an international speaker and author who loves blockchain and the crypto world. Harsh is featured on Forbes, Microsoft, IBM, INC, and many well-renowned publications. Connect with Harsh Agrawal on Twitter at @denharsh.