Paper trading (sometimes also called "virtual trading") is a simulated process in which would-be investors can 'practice' investing without committing real money.
This is done by the manipulation of imaginary money and positions that behave in a manner similar to the real markets. Before the widespread use of online trading for the general public, paper trading was considered too difficult by many new investors. Now that computers do most of the calculations, new investors can practice making fortunes time and time again before actually committing financially.
Additional meaning of Paper trading:
Various companies offer services, some free, others with charges, that allow investors to try out various strategies (some stock brokerages allow 'demo accounts'), or paper trading can be carried out simply by noting down fees and recording the value of investments over time.
The imaginary money of paper trading is sometimes also called "paper money," "virtual money," and "Monopoly money."