How to Paper Trade Forex

For anyone venturing into the world of forex trading, learning the ropes without risking real money is a crucial step. That’s where paper trading, or simulated trading, comes in. Paper trading allows aspiring traders to practice in a virtual environment, trading real currency pairs under real market conditions but without financial risk.

This approach is invaluable for building confidence, testing strategies, and understanding market dynamics before committing hard-earned funds. In this article, we'll explore the steps to start paper trading in forex, the platforms available, and tips to maximize your learning experience. Whether you're a complete beginner or looking to refine your skills, paper trading can be the perfect bridge to successful, real-world trading.

Benzinga Partner

Get Started

Earn Cashback on Your FX Trades

Open an account in 5 minutes, low commission, spreads as low as 0.0, trade and manage positions from a full suite of mobile and tablet apps.

Get Started

Disclosure: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% to 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

Show More

What is Paper Trading?

Forex paper trading is a way to simulate how a trade might play out without actually investing through a trading platform. Remember that when you paper trade, you’re not making an actual investment. You are mimicking a trade and seeing how it would perform if you had put up real money. 

The obvious benefit of a paper trade is that you get to test out a trade before you invest any cash. This activity is especially useful for people new to the game and looking to sharpen their trading skills. Although most of the tools currently available to simulate your trades are digital, trading simulation is referred to as paper trading.

Getting Started with Paper Trading

A paper trade lets you test out the market before you start risking your money. Instead of paper, you do this with a demo account. Such an account eliminates the need for a forex broker.

Choose a Paper Trading Platform

To paper trade forex, the first thing you need to do is to choose the right paper trading platform. You’ll find many platforms online, and you want to go with one that offers a demo account. This lets you invest in currencies through paper trading but is simulated under live market conditions. 

Opening a forex demo account is as simple as signing up on the platform. Once you have your demo trading account open, you will have access to virtual money to make trades with. Some forex brokers allow you open up multiple accounts to test out different trading strategies.

Your next step should be to familiarize yourself with the features offered on your paper trading platform. Check out the trading simulator and if it actually runs on live market factors. Get comfortable with how the platform works, and after you’re sure you understand it, move on to the next step. 

Researching and Analyzing Currency Pairs

The next step is to do your research before you start to paper trade forex. This research includes looking into currency pairs on the market and finding suitable ones for yourself. A currency pair involves the comparison of two different currencies against each other. For example, it measures how much of one currency (e.g. USD) you would need to buy another currency (e.g. GBP). 

Your research should include understanding the major currency pairs that would make a good investment. You should be looking into economic and social factors that could influence the forex market or your currency pair. 

Developing a Paper Trading Strategy

Strategizing and planning are important when you start to paper trade Forex. Before you even begin your demo trades, set your trading goals, including how much you’re willing to risk and if you want to make a short or long-term investment. 

Your risk tolerance is what you can afford to lose. With that determined, decide what kind of trading strategy you want to employ. Your plan should include entry and exit strategies, that is to say, how you plan to begin trading and when and how you would sell off your trade. 

The goal is to then test out various strategies based on historical data to see which pays out the most with demo trades. 

Monitoring and Evaluating Paper Trades

Once you decide on a trade, you have to monitor it closely. Your forex demo account will help you track how your paper trade is performing. It’s your job to analyze it and determine if your investment is performing how you want it to. 

This is where you determine if your trading strategy is working. If your returns are coming up short, that means you need to refine your demo trades. Log into your paper trade account and track your performance regularly. 

Emulating Real Trading Conditions

Your demo trading account covers live market conditions. It does not take into account other aspects of trading, such as how your financial position is affected. No matter how experienced a trader is, for example, their emotions might play some role in their trading decisions. No trading simulator takes these factors into consideration. 

When you paper trade forex, you have to implement the money management techniques you would use during a real trade. Your demo trades should come with the same discipline and emotions that actual trading would involve. 

To stick to your goals, you will have to exercise the same patience that you would in the actual market. Rather than rushing to spend all your virtual money, you will have to plan how you manage your demo trades with other life expenses. 

Learning from Mistakes and Adapting

The whole point when you paper trade forex is to learn from it. Your paper trade account is meant to help you see if your strategy is working or if you need to improve it. Rather than sticking to it, realize the limitations and adjust your approach. 

Trading is a learning process, so you need to treat it as such. Identify the mistakes you make on your demo account, learn from them and apply the lessons to your real trades.   

Graduating from Paper Trading to Live Trading

When you’ve been using your demo account for a while, you should gain some experience and confidence. Once you feel you have enough confidence and your paper trading has become consistent in terms of performance, you’re ready to move on from paper trading forex. 

This is where you can contact a forex broker, open a brokerage account and start trading. It’s time to apply everything you’ve learned from your trading simulator to the real world. 

Best Forex Brokers That Offer Demo Accounts

A forex broker is equipped with industry knowledge, as well as an understanding of the platform. It is in a position to guide you when you first start paper trading. Let’s take a look at some of the best forex brokers you can use for a demo trading account.

Start Trading Today 

A paper trading platform gives you the opportunity to practice trading virtually.  Paper trading gives you the opportunity to test your skills or strategy before you start trading with actual money.  Once you’ve gained some experience on a demo account, you can start to move on to the real world. When you paper trade forex, you learn valuable lessons that you can apply to real-world trading. 

Frequently Asked Questions