Paper trading is practising trading with pretend money in a simulated market, before using real money. It is also called virtual trading, or a stock market simulator. The name comes from the old habit of writing imaginary trades on paper and checking them against the next day's prices.
A paper trading app shows real market prices, either live or a few minutes late. When a user places an order, the app does not send it to a broker or to the exchange. Instead, it checks the order against the current price, records a pretend trade in its own database and updates the user's pretend balance. Many apps add contests, leaderboards and short lessons.
Say a first-year engineering student in Bhubaneswar joins an app and receives ₹10 lakh of virtual money. She "buys" 50 shares of a bank at ₹1,600 each, which costs ₹80,000 of her virtual money. A week later, the price is ₹1,560. The app shows her a loss of ₹2,000. No real money has moved, and no real order has reached the exchange.
Why does this help? A beginner learns how orders, prices and charges work, and how quickly a position can lose value. This matters most with futures and options, where losses grow fast. Some stock trading apps offer a practice mode of this kind. Traders also use paper trading to test an automated options strategy before it trades with real money.
Paper trading has limits. A pretend trade always happens at the price on the screen. In a real market, a large order can move the price, and fear of a real loss changes people's decisions. So good results with pretend money do not promise good results with real money.
Because these apps teach, they sit close to education, and some also appear among online courses. They must still respect SEBI's rule on investment advice: they may explain how markets work, but they must not tell users which real shares to buy.
Paper trading is different from a beginner investing app. A beginner app uses real money, in small amounts. Paper trading uses no real money at all.