Paper trading is a simulated trading practice that allows individuals to buy and sell financial instruments without using real money. It helps traders practice their strategies and understand market dynamics without the risk of losing actual funds. This method is often used by beginners to gain confidence before entering the real market. Traders can track their performance and refine their techniques through paper trading platforms, which mimic real market conditions. By analyzing their trades, they can learn from mistakes and improve their decision-making skills, making it a valuable tool for both novice and experienced traders.