There’s no question about it: Options traders don’t have time to deliberate. Hesitation is a killer whenever you trade the stock market. Luckily, new traders can quickly improve their skills by practicing. How can you practice trading? With fake money, of course! Most brokerages now offer demo accounts using the best paper trading options software.
Just like Monopoly, paper traders are given a bankroll of fake cash and can buy or sell any securities they wish. Paper trading takes place during open market hours so price changes can be tracked in real-time. If you’re a trader who wants to learn options, a paper trading account is a necessity for honing your skills.
Quick Look: Best Paper Trading Options Platforms
- Thinkorswim by TD Ameritrade – Learn more
- eOption Paper Trader – Learn more
- Interactive Brokers TWS Paper Trader – Learn more
- ETNA Trading Simulator
Why Paper Trade Options?
Options can be risky trading vehicles, especially during volatile markets. Profits and losses can be multiplied exponentially when using options and an uneducated trader might see a bankroll evaporate quickly. Reading articles or books about options trading can help, but there’s no substitute for experience.
Paper trading allows you to can gain experience without putting any money at risk.
Testing different options strategies and techniques is easy because you can watch trades unfold in real-time. Though paper trading is crucial for anyone trying to learn a new market, it’s also important to understand the limitations. Paper money isn’t real — you won’t feel the same pain after a big loss that you would with actual money.
Keeping your emotions in check is a huge part of trading and paper accounts simply can’t recreate these mental hurdles. In fact, too much paper trading might lead to overconfidence and you could develop some bad habits.
Trading fake money is great practice for the real thing, but make sure you understand the difference between a scrimmage and a game.
Key Features of Great Paper Trading Platforms
Paper trading software needs to be as close to the real thing as possible, so you’ll want to choose a software with plenty of research and tools, real-time market prices and an interface that allows seamless trading.
Paper trading is a great way to familiarize yourself with how various technical indicators work and how they react in different types of markets.
Here’s what to look for when searching for paper trading software:
Highly customizable analytical tools
Don’t be shy about incorporating new technical indicators or chart patterns into your trading strategies. The point of paper trading is to learn how to trade options.
Reading up on technical analysis is one thing, but seeing it in action is entirely different. Make sure your paper trading software is loaded with analytical tools. There’s little consensus on what works best so each trader will have different favorites.
Accurate market quotes
You don’t want to be trading on old data, do you? Most free paper trading programs will have some kind of delay on price quotes, but anything older than 20 minutes won’t help you if you want to practice during open market hours.
A clunky or archaic paper trading program will provide a lot more frustration than education. A little trial and error might be required to find an interface that works, but avoid anything that requires a dozen mouse clicks to execute a simple trade.
Realistic user experience
Paper traders have no skin in the game and don’t face any real consequences for losing money. If it feels too easy like a video game, you might not get much out of it.
The best paper trading platforms don’t just simulate the experience — they’re identical to the platforms used by traders who risk real capital.
Our Top Picks
Using the above criteria, we’ve chosen the best paper trading programs for options. You’ll recognize plenty of names on this list, but there are a few newcomers who have competed to make the options market simpler and more accessible.
Try to keep your paper trading activities in line with how you’d throw around your own personal capital. If you manage risk well in your paper trading account, you’ll be better prepared for live markets.
Remember, brokers want you to have success in paper trading. The more success you have with fake cash, the more likely you’ll be in putting money into a brokerage account, and that means commissions for the broker.
Best Overall: Thinkorswim by TD Ameritrade
Thinkorswim remains one of the most sophisticated platforms on the market. If you have a TD Ameritrade account, you’ll get 2 different paper trading accounts. One is a standard margin account, the other is an IRA; both come fully funded with $100,000 each.
TD Ameritrade isn’t the first company to come to mind when you think options brokers, but the Thinkorswim platform has some terrific tools specifically for options trading. And it’s all available for both live and paper trading accounts.
Take the Strategy Roller, for example. This feature allows you to develop your very own covered call strategies using certain rules established in advance. Strategy Roller will take your predetermined strategy and roll it forward each month until you stop it manually.
Thinkorswim also has Options Statistics, specialized tools for traders to find entry and exit points on options trades. The Sizzle Index measures the day’s options volume in comparison to the last 5 trading days.
With over 400 technical indicators and access to the CBOE’s TradeWise options newsletter, Thinkorswim gives paper traders more than any other platform.
eOption Paper Trader
eOption may not be a household name, but it has offered low-cost brokerage services for options traders since 2007. Commissions are only $3 for equities plus $0.15 per option contract and clients can even trade the underlying stocks and ETFs themselves. Automated trading programs and mobile apps are available too, but new traders can test their hand using eOption’s Paper Trader.
Using Paper Trader, you’ll get $100,000 in fake money to trade both options and equities. The platform is completely customizable, so users can change the layout to suit their preferences. The probability calculator lets you know the odds of your potential trades and you’ll have access to the full quotient of eOption newsletters and research. Note that there are no commissions on paper trades.
To open an account with eOption, you’ll need $500 (and $2,000 to use margin).
Interactive Brokers TWS Paper Trader
Interactive Brokers has a tremendous platform in Trader WorkStation, capable of analyzing all kinds of markets with hundreds of technical tools. It’s definitely an intimidating program to the inexperienced trader, but thankfully Interactive Brokers offers a paper trading account with nearly all the features of the live platform.
With $1,000,000 in fake cash, you can play around with different things, especially the options trading tools.
The Options Portfolio algorithm with automatically adjust your account to the Greek risk dimensions (delta, theta, vega or gamma) while factoring in commissions and decay. In the Options Strategy Lab, you’ll be able to enter your own intricate option orders and compare up to 5 different strategies at once. You can filter by characteristics like strike price or expiration and enter orders based on your experiments.
Not well-versed in options lingo? The Probability Lab explains options strategies in simple terms without the head-spinning math formulas.
ETNA Trading Simulator
ETNA isn’t a brokerage firm, but a technology company that provides trading solutions to broker-dealers and other institutional clients. Some of ETNA’s most famous customers include OptionsRoute, Just2Trade, Tradier and more.
Its white label trading platform has an HTML5 front end and corresponding mobile apps on iOS and Android. But while retail options traders aren’t the target client base, ETNA does have a terrific stock simulator complete with features for options traders.
The demo platform runs on the same system as ETNA Trader, compatible with all major browsers. Users can customize their dashboard with dozens of different widgets to access live and historical trading data. Users can execute complex trades like option chains and multi-leg orders on the platform while streaming Level 2 quotes. ETNA’s Trading Simulator is realistic and detailed, but retail traders will need their own brokerage account elsewhere to use what they learn.
Make Your Choice
You’re going to need an actual brokerage account to get full access to the best paper trading platforms for options, but many offer free demo accounts for prospective clients to try out. Take advantage of these demo accounts and sample a few different platforms. Paper trading is all about gaining experience, so taking a platform for a test drive is the best way to make a decision.