Interactive Brokers for Paper Trading

Interactive Brokers (IBKR) offers a highly advanced platform for paper trading, allowing users to practice their trading strategies without risking real money. Whether you're new to trading or an experienced trader looking to test new ideas, IBKR’s paper trading feature gives you access to real-time market data and the tools available for live trading. This makes it an excellent choice for building confidence and refining strategies before entering the live markets.

How Does Paper Trading Work on Interactive Brokers?

Using virtual money to execute trades in real-time market conditions, paper trading allows users to simulate real trading without financial risk. On Interactive Brokers, the paper trading account mirrors a live account, providing access to all the same tools, asset classes and markets. You can trade stocks, options, futures, forex and more – all without risking a penny.

Interactive Brokers’ paper trading account offers full features, including access to Trader Workstation (TWS), real-time quotes and a range of advanced trading tools. This allows traders to simulate trading strategies as if they were live, making it a powerful educational tool. 

Who Should Paper Trade on IBKR?

Paper trading on IBKR is suitable for both beginners and experienced traders.

• New traders: Paper trading is a great starting point for those who are new to trading and want to get comfortable with the market's mechanics without the pressure of risking real money. You can learn how to place trades, manage your portfolio and develop risk management strategies in a completely safe environment.
• Experienced traders: Seasoned traders can use paper trading to test new strategies or explore unfamiliar asset classes, such as options or futures. It’s also useful for adjusting to a new platform like IBKR, where you can practice using advanced features before going live.

Whether you’re sharpening your skills or experimenting with new trading techniques, IBKR’s paper trading is a valuable tool for all traders.

Is a Paper Trading Account With IBKR Free?

Yes, paper trading on Interactive Brokers is free, but there’s a catch – you need an active live IBKR account to access it. This means that while paper trading doesn’t cost anything, you need to meet IBKR’s initial account requirements to start. There’s no minimum deposit for IBKR Lite for most account types, but IBKR Pro requires at least $100 to open.

While paper trading has no associated fees, opening a live account comes with certain standard fees, such as trading commissions or market data fees, depending on your account settings. Check out the specific terms for your account type before diving into live trading.

Pros and Cons of Paper Trading on IBKR

While paper trading on IBKR offers numerous advantages, it also has several downsides. Let’s examine the pros and cons.

Pros

• Real-Time Market Data: IBKR’s paper trading account gives you access to live market data, which makes your simulated trades as close as possible to real-world conditions.
• Comprehensive Asset Access: You can paper trade across multiple asset classes including stocks, bonds, options, futures and forex, providing an all-encompassing practice environment.
• Advanced Trading Tools: The paper trading platform gives you access to the same powerful tools as live trading, including Trader Workstation (TWS), enabling you to refine sophisticated strategies.
• Risk-Free Learning: Perhaps the biggest benefit – there’s no real money on the line. You can test and tweak your strategies without the emotional and financial stress of live trading.

Cons

• Lack of Emotional Pressure: Paper trading doesn’t replicate the psychological aspect of real trading, where the risk of losing real money affects decision-making.
• Differences in Trade Execution: Trades may be filled differently in paper trading due to the absence of real-world factors like liquidity and slippage, which can impact actual trade execution.
• No Exposure to Trading Costs: Paper trading doesn’t account for fees like trading commissions or market impact, so the results may not perfectly match live trading outcomes.
• Requires a Live Account: You can’t access IBKR’s paper trading without first setting up a live account, which may be a hurdle for some new traders.

How to Set Up a Paper Trading Account on IBKR

Setting up a paper trading account with Interactive Brokers is simple once you’ve established a live account. Here’s how to get started:

1. Open a Live IBKR Account: Sign up for an IBKR account. You’ll need to provide personal details, verify your identity and meet the minimum deposit requirements based on your chosen account type.
2. Request a Paper Trading Account: Once your live account is approved, you can request access to paper trading. Log in to Client Portal and select the option to create a paper trading account under your profile.
3. Activate Paper Trading: After setting up your paper account, switch to paper trading mode from Trader Workstation (TWS) or Client Portal. Your paper account will be prefunded with virtual cash so you can start trading.
4. Begin Trading: You can now start executing trades, testing strategies and tracking your virtual portfolio using real-time data.

What Is the Difference Between Interactive Brokers Live and Paper Trading?

The financial risk involved is the key difference between live and paper trading on Interactive Brokers. You use virtual money in paper trading, meaning there’s no real financial impact if your trades go wrong. In live trading, you’re using real money, which adds emotional pressure and the potential for financial gain or loss.

Execution in paper trading is smoother as it doesn’t account for factors like liquidity, slippage or market impact that can affect real trades. Fees such as commissions, market data costs and interest charges aren’t factored into paper trading either.

When moving from paper to live trading, it’s crucial to stick to the strategies that worked in your paper account. Prepare for the added emotional and psychological elements of risking real money. Traders should also familiarize themselves with the potential for real-world trade execution differences and market fees, which aren’t fully reflected in paper trading.

Is IBKR Paper Trading Worth It?

For anyone looking to learn how to trade or perfect their strategies, paper trading on IBKR is a fantastic resource. It offers real-time data, access to multiple asset classes and advanced trading tools – all without financial risk. Whether you're a beginner or an experienced trader, IBKR’s paper trading is an excellent way to practice and refine your approach before transitioning to live markets.

Frequently Asked Questions