Paper Trading

The other way of checking your trading system without losing money is to do paper trading, which means doing everything that your plan requires from you apart from actually placing the bets. You can get a practice account with some dealers that allows you to do just that, though you can also just use the numbers that your real account shows and record them without putting any money out. While it’s good if you can do both back testing and paper trading, both to practise and to build confidence in your system, you need to do at least one of them.

Paper trading allows you to check that your plan will be profitable, and see how well it works, before you lose any money. The main problem, and the criticism you will hear levelled against paper trading, is that it doesn’t test your emotions, and how you will react to different situations. It’s generally agreed that your mindset and the way you control your emotions is one of the major factors in trading, so a scheme to check your system’s performance without including that effect could be discounted on that basis.

Some people will argue that the only way to really test your plan is to actually place bets. If you have the spare cash, then I would agree that you could do that, and you would get the complete picture, but I don’t believe that you are studying this guide so that you can then go out and lose money learning the markets. While betting live is the “proof of the pudding”, you should take what steps you can to guard your funds.

Fortunately spread betting is somewhat kind to the beginner, in that you can start with relatively small stakes after you have got the hang of it with paper trading. This is unlike, for example, the stock market, where each share can cost you a relatively large amount. Many spread betting companies allow you to wager just 50p or £1. because of the gearing, you can still make or lose much more, so all the cautions previously stated apply; but at least you will get used to using real money.