There is nothing wrong in paper trading if you are new to stock market trading.  However, you cannot forever do paper trading.  Initially, it is used to develop a strategy before you put any real money into the market. But aside from that you need to invest with real money eventually and here is why.

1. The Obvious Reason, If you don't invest real money you don't make money.

If you are paper trading and making a great return on your fake money that's great you are half way there. Now you need to figure out how to do it with actual money. Until you start investing with real money you will never get rewarded for all of your hard work. Remember you can't buy anything with your paper trading profits. If you want all this time you spend to be worthwhile you need to invest real dollars.

2. Emotions, Emotions, Emotions

The biggest reason that it is much harder to make money in a real account then a paper account is emotions. You might be constantly making 50% + annually in your paper trading accounts, but trying to break even in your Actual account. What is the difference, emotions.

Trading with real money is a constant battle with your emotions. You might decide not to enter the next trade because you have been losing money on the other trades, or you might get out of a trade too early and not follow your rules.

Trading is easy; keeping your emotions in check is hard. Being able to make money despite being human is the first key to being successful.

3. Gain Confidence

Nothing makes you gain more confidence in yourself and your trading abilities then making a huge return in your actual account. Huge Paper Trading profits just don't cut it. And of course there is nothing wrong with gaining more confidence.

Yes, I do agree that it is very hard to put real dollars on the line, but it needs to be done if you ever plan on being a great trader.

"Diversification is a protection against ignorance.  It makes very little sense for those who know what they're doing." 

*-- The Warren Buffett Way

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