Suppose you have created several quantitative trading strategies, tested both the in-sample and out-of-sample performance of those strategies using free historical stock data, and found some of them are really profitable and have good sharpe ratio, what will you do next? Put your real money into the stock market and start trading? Yes, you can, but you are in the danger of slippage risk of your mis-estimated model (or you even don't consider that for backtesting at all), which might kill your profit.
(slippage is the difference between estimated transaction costs and the amount actually paid, or between the price you want to buy/sell and the price you indeed execute.
) Many investment firms prefer to use paper trading (sometimes also called "virtual stock trading"), which is a simulated trading process in which would-be investors can 'practice' investing without committing real money, to partly handle this issue.
However, as individuals, we have difficulty in finding a third party willing to play paper trading with us.
What shall we do then? I personally prefer to try online stock practice, which provides virtual money and considers the real stock market situation (bid, ask, etc.
) and therefore is an excellent free trading practice.
For example, some practice platform gives each account $1,000,000.
00 after registration, which is normally free and easy.
You are able to join a network, participate a competition and earn real money if your performance is good enough.
Plus, each member has a personal profile page showing the latest trading activity, profit and loss, rank, your friends' performance, etc.
Please read my online stock practice story, join my network and compete with my friends and me.