Paper Trading Options

Option paper trading has been a term used to describe the way we would evaluate an option trading system without using actual money. There are some major benefits in doing this.

1. You are able to prove to yourself whether the system you've selected or been trained in, is in fact, a profitable one. It also allows you the opportunity to tweak and improve the system and see the financial consequences with no real risk. This will give you confidence in the system itself.

2. The experience of option paper trading "trains" you how to react to adverse market conditions. A component of any worthwhile options trading system is the assmption that a percentage of trades will likely be losing ones. You'll need to be psychologically prepared for this. If a predetermined stop loss is part of your system then you need experience in accepting losses before you decide to start using your own funds.

3. The most successful options traders claim that 90 percent of successful trading depends upon psychology. You need the right mindset when reaching trading decisions. When you adopt the mindset of a gambler, you will know the pain of gambling losses. It is crucial that you look at your trading with the mindset of a serious entrepreneur. Each day you will make business decisions based on strict criteria. You will need to have patience and wait for the right setups and confirmation signals so that you don't make the mistake of trying to predict the market before it shows you where it's going.

You will have to practice the way you manage your trading capital and use position sizing in a systematic way which means you don't risk too much of your money on a single trade. You may need to make some mistakes of this type and "feel" the consequences of greed or needless risk. Option paper trading is not merely about identifying trading opportunities, but also about learning the self discipline which is so necessary in order to succeed.

Where and how to Paper Trade

The most popular options brokers like TradeKing, OptionsXpress and ThinkorSwim, include an appealing feature that permits you to paper trade without resorting to real money. They offer you a "Virtual Trading" tool, where live options prices are applied to live stock prices and you can try out your trading strategies without risking real money. But the rest is real, including trading reports which keep track of all your deals and brokerage costs, so that you can see what your profit or loss would have been, had you been trading with your own funds.

Just add an imaginary amount of money to start with and then proceed with implementing your trading plan. This is an ideal way to gain real confidence that you can actually earn a living trading options.

One last thought. Option paper trading must be taken seriously for it to be truly beneficial. A casual approach which neglects to monitor your trades or enters questionable positions because you know that you can't really lose, is a dangerous psychology. Trust me, once you graduate to using real money, everything will change at an emotional level ... so to make use of it as a serious training ground and you will be rewarded.