It probably isn’t a coincidence that CNBC is launching its “Million Dollar Portfolio Challenge” just as fantasy football season is in full swing because there are real parallels between the two. Fantasy football is a pastime enjoyed by millions of Americans. However no one who runs a fantasy football team seriously thinks of it as a stepping stone to become a NFL general manager.
Unfortunately some novice traders might think this contest is stepping stone to a trading career. In general we have been skeptical about paper trading. There can be benefits to paper trading for novice investors. Paper trading can help accelerate the learning process when it comes to the mechanics of trading. You can also see how paper trading could help when it comes to trying out new trading systems or strategies.
However a trading contest like turns upside down the way traders should think about risk and return. Check out the tag line from the contest: “No Risk. All Reward. Grand Prize $1 Million.” Every great trader I have read about takes the complete opposite position: risk first, reward second. Fantasy trading is therefore unlikely to help you when it comes to putting real money on the line.
The bottom line is that traders trade. No matter how small the notional amounts involved there is no substitute for putting real money on the line. If you want to play the CNBC Million Dollar Portfolio Challenge, good luck. You might even win the million bucks or some of the other cool prizes. However don’t think that fantasy trading is anything like real trading.