What Is Paper Trading: Zero-Risk Crypto Trading

  • Facebook
  • Twitter
  • LinkedIn
  • Telegram


  • Paper trading is trading on a “testnet” or simulated environment with made-up money, with the aim of allowing beginners to get their feet wet before they invest actual money on the markets.
  • Traders can trade with real-time data fed from the actual crypto markets, but the balance is not real and they will not be able to withdraw their assets while they’re paper trading. At the same time, paper trading losses incur no debt.
  • Interested beginner traders can get a free paper trading account on the Phemex Testnet and practice trading in a simulated environment.

paper trading

Want to get started trading crypto without risking money? Paper trading allows you to do just that.

Many people are reluctant to start trading because they see Bitcoin (BTC) is at $20,000, and they’re afraid they could lose thousands if they tried trading it. Others assume it takes years of experience to learn how to use technical analysis tools and trade.

This couldn’t be further from the truth: A beginner trader can get started in 5 minutes with a demo account with zero upfront investment.

This guide will explain how paper trading works, the advantages/disadvantages, and how to get started with a free paper trading account on Phemex.

What Is Paper Trading?

Paper trading derives its name from the pre-computer era, during which traders would test their strategies by writing them down on paper and seeing how they would turn out if they actually traded on the market. These days, paper trading is done virtually and traders can trade with all the tools they have on a live account.

Paper trades are not real trades. While your account might have a $1 million balance, it is a paper trading account which means the funds are not real. You could lose the $1 million or gain an extra $10 million, but you can’t withdraw or do anything with the money.

Imagine a paper trading account as a virtual environment that uses bogus balances. The data is derived from the live market and you’re actually trading in real-time and putting your skills to the test.

Paper trading is mostly popular in the stock markets; large trading brokers like AmeriTrade and IG offer paper trading support for stocks.

While it is less common in the crypto market, exchanges like Phemex also provide paper trading platforms, with over 200+ coins live and a starting balance of 0.5 BTC and $5,000 USDT.

The idea behind paper trading is to provide an environment for beginners to get their feet wet in trading, without the risk of losing funds.

The same tools you get from a real trading account (i.e. indicators) will be available on the paper trading account. For example, you can experiment with the RSI indicator or the Keltner Channels, and practice on different charts such as 4-hour, 1-hour or 15-minute charts, for example.

Get 180 welcome bonus at Phemex

Is Paper Trading Free?

Paper trading is 100% free. The only variation between platforms is the starting balance they give to you. In fact, most stock trading platforms give an unlimited balance for users so they can practice for days on end.

There is no charge for paper trading and this is why many platforms use it as a way to acquire new traders. If novice traders are trained to trade in a controlled environment with zero risk, they are more likely to experiment with the real markets.

Is Paper Trading Good For Beginners?

Paper trading is great for beginners who are interested to begin their trading journey with zero risk (the starting balance on the Phemex testnet is 0.5 BTC. Users can multiply that balance and spend it any way they wish).

There are a few other advantages of paper trading that all traders should consider:

  1. Free. Paper trading is free and there are no registration fees, free trials, or any hidden costs associated. Traders can instantly set up an account and receive a simulated balance to get started in minutes.
  2. True market data. While the balance is simulated, the market data is not. The market data (i.e. price of Bitcoin) in the paper trading account reflects the underlying market and you are getting access to the same data feeds. The only difference is that the assets are simulated.
  3. Access to technical analysis tools. Paper trading platforms offer the same tools as live trading platforms. On Phemex, users have access to 100+ technical indicators that they can use. They can also pick from hundreds of altcoins.
  4. Suitable for professionals. Paper trading is not only for beginners who want to practice investing, but for professionals with skin in the game. If you want to test out a new trading strategy before risking funds on the market, use paper trading.

How Long Do I Paper Trade? 

Paper trading is recommended for as long as you feel is necessary. For some, it can take 15 minutes until they’re comfortable trading; while for others it can be a month-long journey to hone their trading skills and deep-dive into the markets while feeling confident.

When you’re paper trading, here are the key things you should aim to familiarize yourself with:

What Is The Risk Of Paper Trading?

The under-looked risk of paper trading is that the trader’s emotional state when subjected to real pressure is not accounted for in a simulated environment.

In other words, if a trader is generating profit in the paper trading environment, this could be because they are relaxed knowing that they can’t lose money, and leave their trade active for days on end. However, when they’re taking on real risk in the live markets, they may start micro-managing their trades and closing them prematurely.

Keep in mind that your behavior, and consequently results, in the paper trading environment might not reflect those of the live environment due to the emotions involved with risking your own money.

trade crypto contracts with up to 100x leverage

3 Steps To Start Paper Trading

Phemex provides one of the industry’s best paper trading platforms for paper crypto. The same cryptos listed on our spot market and futures market are available on it, and users can even do futures paper trading.

If you’re ready to get started, follow our simple 3-step process to paper trade.

1) Register for testnet

The official website for free simulated trading is here: https://testnet.phemex.com/

Note: The testnet account is not the same as your main account. You will need to register a separate account here before you can start paper trading.

paper trading at phemex

Fill out the simple registration form with your email and password, and verify your email.

You will receive a unique 6-digit code that you must input for confirmation. Once you sign-up successfully, you will be greeted with a welcome screen:

welcome screen at paper trading

2) Transfer assets

To get an overview of the assets you’ll be working with, head to the “Assets” section on Testnet. Phemex deposits 0.5 BTC and $5,000 in the USDT stablecoin for new paper traders.

transfer assets for paper trading

These assets are deposited in the spot paper trading account, and you can transfer them to the contract trading account if you want to practice futures trading.

3) Start trading

By heading to the “Testnet Markets” on the top left, you will get access to the spot and contract marketplaces available for paper trading.

Let’s say you want to do spot paper trading. All you have to do is click on “Spot” and it will bring up a list of the futures pairs available for trade.

spot paper trading markets

The price of the simulated Bitcoin matches the underlying spot price of Bitcoin on the live markets.

Under “Place Order” on the left, you have the ability to buy or sell Bitcoin:

place order at to paper trade

On the bottom left, we see our balance is $5,000 USDT which we can use to purchase more Bitcoin or place active trades.

Ongoing trades will appear below in the “Active Orders” menu:

active paper trading orders

Once you complete a trade, all you have to do is close it and the outstanding balance will be deposited in the assets section.


Paper trading is an easy-to-use tool that takes the risk out of the learning process in trading, which can be rather intimidating to a beginner with all the numbers, charts and lines. This is especially so if one has never traded in the traditional stock markets. Crypto trading is oftentimes a rollercoaster ride for even the most experienced of traders; every bit of preparation and training helps before you step into the actual arena.

For any inquiries contact us at support@phemex.zendesk.com
Follow our official Twitter | Join our community on Telegram
Trade crypto on the go: Download for iOS | Download for Android
Phemex | Break Through, Break Free