A mistake a lot of newcomers to trading in binary options make is jumping in too soon with real money trades. Options trading in all its forms, binary options, vanilla options and LEAPS are highly speculative. If you're new you are more likely to make mistakes.

Hence the need for paper trading. This is as the title says ground school for traders. What I mean is if you were to take up skydiving the training program will (hopefully) teach you how to operate the parachute before taking you up in the plane to jump out.

For obvious reasons, they'll have a higher rate of student retention. As with everything else you do in life you didn't become an expert over night did you?

You learned to ride a bike with either training wheels or with your parents' hand at the back of the seat. You started swimming in the shallow end of the swimming pool.

The same is with trading in binary options.

What is involved with paper trading, or with virtual trading is you learn how to recognize signals for when it's time to enter a trade. You write down the security, the starting price and then when the trade is over you write down the closing price.

You then calculate whether or not you won the trade.

WHEN ARE YOU READY?

The general rule is after you've done about 20 trades with an 80% success rate and then you'll be ready to do real money trades.

You need to know the rules of the game in order to succeed. If you don't know the rules you can get slaughtered.

Speculative investing is not the place to be arrogant. Thinking that because you read a book on it and you're suddenly an expert.

Paper trading will also help you fight the emotions of fear and greed. The bane of traders. If you see your trade moving up in price making you a lot of money greed might kick in. Hold on a little longer and you'll make even more money.

This can cause you to miss a signal that it's time to exit a trade. When a trade moves dramatically in your favor, ironically it's time to exit. That's because what goes up must come down. And if it goes up like a rocket it will probably come down the same way.

This is not an overly huge concern if you're trading in binary options as there are only two possible outcomes and it happens in an hour or a day. But with other forms of trading that can take place over a month or year it is something that has to be taken into account.

Here's to hoping you have a great and rewarding trading career. Make it a great day.