Think you can beat the Street? Do you know which way the market is going to move? Have you spotted a company that you just know is going to go through the roof? Got a gut feeling on a hot initial public offering (IPO)? Wish you could test your theories without risking your hard-earned money? You can! Welcome to the world of stock market simulators.

Practice Your Skills
Stock market simulators are online tools that enable investors to practice their stock-picking skills without actually investing any money. Investors log on, set up an account, and are given a predetermined amount of simulated money with which to can make simulated investments. (Check out Investopedia's Stock Simulator.)

Simulators can support equity trading, option trading, limit/stop orders, margin, short selling and adjust for most corporate actions (splits, dividends, mergers, etc), allowing investors to test virtually any trading strategy without risk.

Beginner Benefits
For novice investors, starting with a simulator is a great way to learn about investing. Simulators provide an opportunity to learn about basic investment concepts, such as how to read stock tables, the impact of market volatility, trading strategies and much more. News features provide insight into real-word events, such as corporate mergers, CEO resignations and the effect that upgrades or downgrades issued by Wall Street analysts have on stock prices. (To learn more about these factors, see Forces That Move Stock Prices.)

It also provides an opportunity to practice conducting research. Simulators generally offer a host of tools, including historical prices, performance charts, price-earnings ratios for specific securities, as well as historical trading data for various industries and indexes.

Expert Investors Take Note
Stock market simulators can also be valuable tools for more experienced investors. Simulators give advanced users the opportunity to test complex trading strategies in a safe environment. Following the results of a simulated trading strategy provides an opportunity to study the results over time, to refine the technique and to track the results before testing it in the real world. Research tools enable investors to monitor IPOs, track trading volumes and conduct customized screens based on technical and fundamental criteria. (To read more on these strategies, see Getting To Know Stock Screeners and How Investors Can Screen For Stock Ideas.)

Tap Into Real Resources
The tools built into any given simulator are just the tip of the iceberg. There's no reason to limit yourself to those resources when there are so many other tools available. From listening to tips from your broker to subscribing to newsletters written by stock-picking gurus, simulators let you choose from any resources that you can dream up, just as you would if you were buying from a broker or through an online trading account.

Regardless of the resources you use or the trading strategy that you employ, simulators give you the chance to construct a portfolio and find out whether your research correctly identifies winners or losers. Of course, simulators also provide an opportunity to learn something about yourself. Watching the value of your simulated portfolio rise and fall gives you a sense of whether you would be comfortable with watching the balance in your portfolio decline when the markets drop. It also helps you figure out at what point you would cut your losses and sell as well as what point you would take your winnings off of the table. (For more on this topic, see Personalizing Risk Tolerance.)

Learn From Others
Schools often base lesson plans on stock market simulator sessions to give students an introduction to the stock market and help them gain insight into the economic factors that shape the direction of market movements. Newspapers and online venues often run stock market simulation competitions that not only teach investors about the markets, but also give them an opportunity to win real money. These competitions provide a great way to pit your strategies and skills against other investors in an arena where the winner is rewarded. Even if you don't find your name at the top of the leader board at the end of the competition, you still get a chance to see what the winner bought and learn about his or her trading strategy. (To see some common mistakes to avoid, read Learning From Others' Mistakes.)

The Limits of Simulation
There is no doubt that simulators are good tools, but there's just no way to fully replicate the real thing. Even the best simulators offer fewer securities and more restricted trading parameters than the actual global financial markets.

For example, a simulator may not provide the ability to trade foreign stocks or stocks under a certain price - this usually means no penny stocks. There is often a time delay in the data feeds of simulators, which means that your trade won't be executed immediately but after the time delay. For example, Investopedia's Simulator has a 15-minute time delay. By contrast, most real market trades are immediate.

In addition, playing the markets online just isn't the same as putting your own money on the line. Simulated trading is an easier game to play - and one in which mistakes are easily forgotten. It is much easier to invest $10,000 in simulator money in a high-risk biotech stock than to invest in that same stock with your hard-earned cash.

For example, suppose the stock pick is wrong. In a simulator, you can simply reflect on the trade with no money loss, while a poor decision in a real money trade could put your finances into a tailspin.

Start Trading Today
If you keep the limits of stock simulators in mind, they are a great way to test the waters and teach yourself how to be a profitable stock picker. (If you are ready to trade, check out the Investopedia Stock Simulator.)

Related Articles
  1. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  2. Active Trading

    10 Steps To Building A Winning Trading Plan

    It's impossible to avoid disaster without trading rules - make sure you know how to devise them for yourself.
  3. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  4. Forex Education

    Time Value Of Money: Determining Your Future Worth

    Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation.
  5. Investing Basics

    A Simplified Approach To Calculating Volatility

    Volatility is sometimes greater than anticipated, but the way it’s measured can compound the problems that occur when it’s unexpected.
  6. Investing Basics

    Should You Trade Forex Or Stocks?

    Deciding whether to trade stocks, foreign exchange or futures contracts typically comes down to risk tolerance, account size and convenience.
  7. Investing News

    Defensive Investing: Learn from a Hedge Fund Pro

    Looking for ideas on companies, sectors or investments to short? Consider the opinion of this hedge fund luminary.
  8. Investing Basics

    What's a Benchmark?

    A benchmark is a standard investors choose to gauge the performance of their portfolios.
  9. Investing Basics

    How MasterCard Pulled Off a Buyback

    Stock buyback refers to publicly traded companies buying back their shares from shareholders. Why would they do that?
  10. Entrepreneurship

    How To Raise Seed Capital and Grow Your Startup

    To get a business off the ground, entrepreneurs need a clear understanding of how to strategically position themselves for VC firms and angel investors.
  1. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  2. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  3. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center