Maybe you have always secretly wondered if you have a natural talent for investing in the stock market? Perhaps the perception of high risk has stopped you from trying in the past? Well there is a way you can trade without risk. One method is known as paper trading. Basically what happens is you make and keep track of your investments on paper only. You do not actually trade in the real market. So how does this work?
Before you begin you need to decide which investments to trade. Here are the main types:
1. Equities – These are normal publicly listed company shares that you can invest in. They include well-known organizations like McDonald’s, Shell Oil, Intel, etc. There are lists of these companies depending on which country you are in. The financial or business section of your main newspaper will list them and you can find them online.
2. Options – An option contract is an agreement between two parties to buy/sell an asset (e.g. a stock or futures contract) at a fixed price and fixed date in the future. You are betting on a future outcome which is why option trading can be a very risky venture for the inexperienced.
3. Forex – The Foreign Exchange Market, or currency market, is a massive worldwide market for the trading of currencies. Trading is done in currency pairs and is also a high risk venture for those starting out.
We will chose equities. What you need is a list of the equities in your market and their listing codes. The codes are usually 3 or 4 letters that are unique to each company. The full list is available from your local stock exchange.
Use a spreadsheet for speed and simplicity. Before you choose the organizations you wish to invest in, set up your spreadsheet so you can enter the company listing codes down the left hand side. Across the top make headings for the following; Date, Buy Price, Quantity Bought, Total Cost, Date, Sell Price, Quantity Sold, Total Value.
Once you have chosen the equity you would invest in, enter its listing code in the left hand column. Enter the current date and current price they are being offered for sale. Enter the quantity you would buy and the total cost of that purchase adding an amount for brokerage cost. Using an online brokerage to place orders will cost around $25. Make a note about why you chose that particular equity to invest in. It will be useful to analyze later and see if your system works.
When the time you decided to hold the equity is up, or when it has reached your target price, enter the current date, sell price, quantity sold, and the total value less brokerage fee again. Subtract the total cost (including brokerage charge) from the total value (less brokerage) and this will give you your profit or loss. Do this for a few months until you get comfortable with the results.