Broker and technology Alpaca has published a study on paper trading across its platform, providing some insights into the behaviour of traders that open demo accounts with the firm.
Although it’s primarily known for providing B2B services to other brokerage firms, mainly by giving market access to US securities, the company does also offer individual investors the ability to open accounts.
The study the firm carried out looked at traders who signed up to the firm’s Trading API product.
This name is actually slightly misleading. Although it’s marketed as an algo trading product, a Trading API account looks identical to a regular brokerage account and you can use it to place point and click trades, or trade on TradingView, just like you would at any other broker.
That being said the way the product is marketed and some of the more advanced tools you can access may mean that the type of client signing up for the product is someone who is more into automated trading and isn’t just a newbie.
A third of Alpaca clients started with paper trading
The first point of interest was the difference between live trading and paper trading.
Getting a paper trading account is, as you would imagine, much speedier than going through KYC and setting up a live one. Nonetheless, only a third of first trades with Alpaca were on paper trading accounts.
The more interesting part was the conversion rate of demo traders to live accounts. Just over 75% of traders who signed up with the firm opened a live account within 60 days.
However, around a third had already moved to live trading with 10 days and 54% had started trading with real funds in under a month.
On the flip side, only 11.8% of traders who placed a live trade then flipped to place demo trades.
Alpaca’s research was more focused on results for retail traders. But for brokers the message is obvious – having a good demo trading offering can lead to more active clients.
