You should already have a detailed trading plan put together that outlines your entire trading strategy before you begin paper trading.
Paper trading the commodities and futures markets might be one of the best ways to get trading experience without putting any of your money at risk.
Most new traders struggle when they first venture into the world of trading commodities, so it only makes sense to give your trading skills a trial run first to determine whether you're ready to trade when you have actual money on the line.
(* indicates significance at the 5% level.) Over all horizons except monthly, the total return for the equally-weighted commodity futures index correlates negatively with those for stocks and long-term bonds, suggesting that commodity futures effectively diversify an equities/bonds portfolio.
Diversification benefits grow with the investing horizon.
The average annualized return for commodity futures is similar to that of stocks, and both of these asset classes outperform the less volatile corporate bonds.
The following table, also from the paper, provides of commodity futures, stocks and corporate bonds over the sample period.
Returns for commodity futures correlate positively with inflation, and this correlation also is stronger at longer horizons.
The final table, also from the paper, compares for commodity futures, stocks and corporate bonds (seven full business cycles over the sample period).
There's a difference of opinion among many experienced traders as to whether paper trading is useful.
Some say that it's not completely realistic because you don’t have any money at risk.