Crypto Paper Trading: The Best Way to Practice & Perfect Your Trades

If you're new to crypto trading, the idea of losing tons of money because of poor decisions can be overwhelming. Crypto paper trading provides a reassuring alternative: It lets you brush up on your trading skills without wagering your actual funds. How does this process work? 

Explore our guide to discover all the details and the best crypto paper trading platforms.

What Is Crypto Paper Trading?

Crypto paper trading is the process of using simulated trades to practice crypto investing. It lets you learn how the markets work without risking your money on uninformed trades.

Crypto paper trading process gets its name from an older stock market process. Potential investors would try writing out proposed trades on paper, keeping track of how their hypothetical investments would function. In modern times, paper trading works much the same way — but it's all done with technology.

This practice provides the huge benefit of an introduction to crypto exchanges. It lets potential traders see how trading works — without actually involving real money. Though it won't net you any actual funds, it helps you avoid losing all your savings on common newbie mistakes. Most successful traders recommend that investors give paper trading a try before they start working with a real market.

How Does Crypto Paper Trading Work?

Crypto paper trading starts with creating an account on a website, which will let you view a simulated version of a crypto exchange. Depending on the service you use, the paper trading program might look like a fully operational version of the regular trading platform, or it might be a simple demo account with just a few Buy and Sell buttons.

The paper trading service will give you a set amount of virtual money. Once you have these funds, you can start choosing how you want to invest. Your investments will be in simulated forms of real crypto that are currently being bought and sold. Some services just focus on buying and selling crypto, while others allow you to also experiment with options.

Either way, the site then tracks how your trades perform. The paper versions of your crypto will rise and fall in real time, based on how the actual crypto is performing. Thus, if you buy a faux $100,000 in BTC and the real-world BTC price drops, your account will show that you've lost imitation money in BTC.

Typically, paper traders set themselves a financial limit and a time limit. For example, they might choose to start with $20,000 and one month for trading. After this period, they'll take a look at how their funds are performing. If they've experienced losses, they can use this assessment period to analyze their actions and figure out what went wrong. This provides valuable practice and insight.

Advantages of Crypto Paper Trading for Beginning Traders

Crypto paper trading is especially popular among beginning traders. It comes with many advantages for anyone who’s new to the market.

Practice Without Involving Actual Funds

The primary benefit of crypto paper trading is that it helps you to gain trading skills without putting your actual money at risk. You can learn the ropes without potentially losing all of your hard-earned seed money. 

In addition to keeping you from losing real money, virtual money lets you access imaginary funds you don't really have yet. If you haven't saved up a lot of money to invest yet, you can still practice your trading skills with crypto paper trading. This makes it a great choice for prospective investors who still need more savings before they get involved in the crypto market.

Identify Common Crypto Trading Mistakes

When we're new at any activity, we inevitably make mistakes. However, these mistakes are a valuable learning opportunity. New traders find that paper trading exposes them to potential pitfalls they weren't aware of before. Since paper trading simulates the actual market, traders can learn how their current trading style may lead to errors. 

Paper trading easily highlights the ways in which a lack of research, getting involved in online hype trains, or poor risk management can lead to disaster while trading. After making a mistake once with your demo account, you're less likely to commit the same error later on when working with your real money.

Enjoy Hands-On Experience

If you've already spent a lot of time researching crypto trading, you might be tempted to skip paper trading. However, the value of actual experience cannot be overstated. No matter how often you hear things like "diversify your portfolio," actually seeing how your account might plummet after one bad decision is an entirely different thing. This firsthand experience can be an excellent — and irreplaceable — way of refining your skills before you get involved with actual trades. It provides the small nuances that help new traders truly understand the trading advice they've heard before.

Advantages of Crypto Paper Trading for Experienced Traders

Though crypto paper trading is primarily a tool for beginners, it can also be useful for more experienced traders. Many people continue to use paper trading alongside their actual crypto trades.

Test Your Strategy Against Other Techniques

No matter how effective your trading strategies are, there’s always room for improvement. One of the nice things about paper trading is that you can have multiple paper trading accounts open at the same time. For instance, you can use one demo account to test a high-risk strategy while another (simultaneous) paper trading account tests a low-risk technique. Then, at the end of a certain amount of time, you can see how your paper trading accounts have fared compared to your real-world account. This allows you to play around with different trading plans and see which one works best with your trading preferences and funds before applying to your actual crypto trades.

See Whether You Want to Switch Trading Platforms

Paper trading does more than just test your trading skills: It also tests the viability of any given trading platform. As long as the demo account accurately simulates the experience on a particular website, paper trading gives you a feel for the actual platform. You can see whether the new platform will be helpful — or get in the way of your usual trading style.

Trade Without Emotion Getting in the Way

Paper trading accounts are also a valuable way of gaining confidence in the crypto market. Since you aren't using actual money, you don’t become as emotionally involved. Many experienced traders like to play around with paper trades to get a look at how their strategy would work if they weren't concerned about losing funds. Over time, you might find that the chance to trade without being as influenced by emotions insinuates its way into your real-world trades. 

Working with virtual money can give you the confidence you need to take your trading to the next level.

Disadvantages of Crypto Paper Trading

Paper trading is certainly a helpful tool for all sorts of traders. However, that doesn't mean that it’s foolproof. There are a few potential issues to be aware of before you start working with paper trades.

Paper Trades Don't Always Depict Fees Accurately

When you're working with virtual funds, you might not be getting a completely accurate picture of how trading impacts your bank account. Some paper trading platforms fail to show certain details, such as commissions and other fees. At smaller levels, this might just mean that a crypto purchase costs around $0.50 more in real life than it does in a paper trade. 

However, all these little fees can add up. Paper trading tends to do a particularly poor job of displaying accurate costs when traders are conducting a lot of short-term trades throughout the day. To avoid this pitfall, it's essential to start your paper trading account with a site that accurately displays all potential trading costs and fees.

Novice Traders May Confuse Market Trends With Their Own Actions

Another potential problem to be on the lookout for is market correlation. A lot of crypto rises and falls are simply due to various cryptos moving in lockstep. If a trader isn't aware of this trend, they may be confused about why their paper trades are succeeding or failing. For example, a trader who puts a lot of virtual funds into a meme coin might experience portfolio growth because the coin price jumps with BTC prices. However, if they then assume that pushing all their funds into meme coins is a guarantee of success, they could lose money once this temporary correlation ends. 

To avoid this major con of paper trading, it’s essential for traders to actually research the crypto markets they’re involved in. They need to take a look at broader market trends to see whether dips and rises in their account are due to market correlations.

Failure to Take Emotion into Account

Paper trading doesn't use real funds, so investors are spared the panic of a price drop or the elation of a price spike. In some cases, this can be a good thing. It teaches you to make decisions analytically, and it lets you test out various trading strategies without stress. However, it becomes a problem if traders don't recognize the difference between simulations and reality. 

If you immediately try to transfer your paper trading techniques to a real-world account, you can become overwhelmed by all the emotions associated with working with actual funds. Successful traders always need to remember the difference between paper trading and real trading, so they can take their emotions into account when they make the leap from virtual to real money.

Crypto Paper Trading vs. Crypto Trading

To help you decide if you want to give paper trades a try, it's useful to consider how they're different from, and similar to, actual trading. Here are the key essentials you need to know.

Similarities

The main similarity is in how the market moves. Paper trading platforms follow the crypto market and mimic the changes in real time. You'll get a feel for how crypto markets tend to rise and fall. Paper trading can provide a lot of insight into particular coins. Traders can see which coins are on the rise, and which ones are starting to drop.

Paper trading and real crypto trading both demonstrate the effectiveness of your trading strategies. A successful trading strategy will mean a rise in either your virtual money or your real-world money. Both types of trading tend to provide immediate feedback. Poor decisions will lead to lower numbers, while smart decisions will lead to higher numbers. Ultimately, the same strategies that are successful for paper trades tend to be successful for real trades.

Differences

Of course, the primary difference is that with paper trading there’s zero financial risk. Since you’re using virtual money, you can’t put all of your real-world funds into a coin that immediately loses value. Bear in mind, however, that this also means there’s zero chance for a profit. Unlike trading on the real crypto exchange, making all the right choices and all the best moves won't lead you to gain any money.

Another big difference is that paper trades tend to be more short-term. Since they're all about testing different strategies, most people aren't willing to tinker around with a paper trading account for years, ignoring actual crypto investing. Though long-term paper trading can provide some market insight, it often distracts from actual trading that allows actual profits. Usually, people find paper trading more similar to real-world trading when they're day trading for crypto, not planning on years-long crypto investing strategies.

The final difference is that paper trading tends to entirely leave emotion out of trading. Of course, you can still get the same rush you would from winning at a video game — but it's a far cry from handling actual money. This important distinction tends to make actual crypto trading feel far different from paper trading. A strategy that may have felt like a sound move while paper trading may feel extremely intimidating with real crypto trading.

Best Crypto Paper Trading Platforms

There are a variety of ways you can improve your trading strategies by practicing with a paper trading account. Here are a few of the most popular platforms to try out.

Bybit Testnet

The Bybit Testnet trading platform remains one of the most popular paper trading accounts. This crypto paper trading site provides a thorough look at the crypto trading services available on Bybit. Users start by creating an account and receiving Testnet coins through various faucets. These “Bitcoin testers” have no real-world value, but still provide a lot of opportunities for experimentation. Bybit’s paper trading platform has a clean interface that still provides access to a variety of crypto prices and other essential metrics.

In addition to providing a risk-free environment for getting comfortable with trading, Bybit's Testnet also provides a lot of helpful resources. Their Bybit Learn site is ideal for new traders who want to learn all about crypto, including trading strategies to try out on the Testnet. After you’re comfortable paper trading on the Bybit Testnet, you can proceed to sign up for a real account and get started on actual crypto trading.

If you’re worried about trading for the first time with real money, you can also check out Bybit’s Copy Trading platform, where you can copy and execute the trades of experts. 

eToro

eToro® lets users create a demo account where they can work with up to $100,000 in virtual money. The nice thing about their paper trading accounts is that they come with an extensive range of analytics. You can view time trends, or copy strategies from eToro's highest performers. The main downside of the eToro paper trading platform is that it’s a bit limited, in that you can only study 16 digital currencies with one account.

Cryptohopper

Cryptohopper demo accounts allow you to test out paper trading with their crypto automation service. Once you open a demo account, you can train various bots and test out automation strategies for crypto trading. Some helpful features include the ability to copy other traders and a variety of bot templates to start out with. However, the Cryptohopper paper trading simulator is a bit complex, and not recommended for beginners because it focuses on automation as opposed to standard trading.

Interactive Brokers LLC

Interactive Brokers LLC is a popular U.S.-based crypto trading site. It offers a variety of paper trading accounts for crypto traders. This site is good for testing multiple strategies at once. You get an account balance of $1 million, and can purchase hundreds of different coins and other investments. Despite all these perks, this platform can be a little tricky to use. The interface isn't very intuitive, so expect to spend some time learning how to navigate it.

BitMEX Testnet

BitMEX Testnet is a platform available on the popular BitMEX crypto derivative site. The Testnet is a separate entity, so you'll need to open a separate account to start paper trading. Once you do, you get 100,000 Testnet Tether (USDT) to work with. Some users feel that this trading platform isn't entirely realistic, because Testnet prices can vary from BitMEX prices, especially when liquidation is low. However, the nice thing about this exchange is that it lets you work with derivatives, in addition to buying and selling standard coins.

Webull

Webull offers a highly effective paper trading simulator. Their target audience is beginning traders, so they work hard to make everything as simple as possible. In just a few minutes, you can sign up and start simulating trades on crypto, stocks and options. Users have unlimited virtual funds and plenty of opportunities to try out different strategies. 

Webull may actually be a little too user-friendly, if such a thing is possible. Its focus on things like automatic alerts, pricing indicators and other user-friendly tools can make it harder to learn on your own, or to fine-tune your strategies.

TradingView

TradingView works well for people who want to track different trading strategies at once. For the most part, this site works similarly to many other crypto paper trading platforms. You create a paper trading account, receive virtual money and start investing. The nice thing about TradingView is that you can take snapshots of trade setups. These show all your current virtual purchases and account balances. You can take repeated snapshots of different setups to compare strategies and find the best one. The only drawback to TradingView’s paper trading platform is that many users report customer support is almost nonexistent, so this site isn’t advisable if you feel you need extra assistance.

Bitsgap

To get started with crypto paper trading on Bitsgap, you simply open a demo account that comes preloaded with virtual funds equal to 10 BTC. Paper trading on Btisgap has some nice perks, such as conditional stop limits and trailing take-profits. These tools can make trading a little easier for beginners. However, Bitsgap can feel a little simplistic at times. The site has no mobile support, so it's only recommended if you want to practice on a desktop computer.

Phemex Testnet

Phemex Testnet is a paper trading platform that runs alongside the Phemex exchange. Phemex is somewhat limited in the coins available. It primarily focuses on popular options like BTC, ETH and USDT, so it might not be ideal if you want to practice with some of the smaller currencies that can make crypto trading so interesting. That being said, the Phemex Testnet does have some nice perks, such as helpful tutorial guides and very thorough data protection.

AvaTrade

AvaTrade is a broker that offers a broad range of forex, stock and crypto trading options. Their paper trading platform works fairly similarly to the main AvaTrade interface. You can work with a lot of cryptos and see how to trade them. There are a lot of useful market analysis tools and chances to learn about crypto. The main downside of this program is simply that it has high inactivity fees. Of course, this isn't a problem for crypto paper trading, but it can be an unwelcome surprise if you try to switch to real trading. Another downside is that it doesn't offer stop-loss protections.

Is Crypto Paper Trading Worth Trying?

Crypto paper trading is definitely worth a try. It offers hands-on experience for new traders, and allows them to easily test various strategies. There are almost no downsides to working with this technique. All it requires is a little time — and the recognition that real trading can involve emotional stressors. As long as you take into account the differences between real trading and crypto paper trading, you can translate the lessons you learn with paper trades into actual trading success.

When you use a trading platform like Bybit's Testnet platform, it's easy to get a feel for crypto trading. Since the Bybit Testnet functions just like its real trading platform, new traders can familiarize themselves with Bybit’s crypto exchange. Traders can discover the right strategies for their needs and catch any mistakes before they start working with real money. Once you build up confidence with a demo account, you can create a real Bybit account to start actually working with real funds. The Bybit Testnet makes you comfortable with trading so you can seamlessly transition to investing in the actual crypto market.

The Bottom Line

Crypto paper trading is a valuable way to gain insight into crypto trading without putting real money on the line. Not only does it help new traders learn trading skills, but it's also an ideal way for experienced traders to fine-tune their trading strategies. As long as you find a crypto paper trading platform that works for you, experimenting with this service can be quite worthwhile.