Understanding how money and investing works is something that we should all learn early in life, but for some people, investing is so foreign that they don't know where to start. Even the concept of numbers can be intimidating to them. Fortunately, there are ways to make money management both fun and interesting. This is where online stock market simulators can come in handy.
What are Online Stock Simulators?
Online stock simulators are simple, easy-to-use programs that imitate the real-life workings of the stock market. Most simulators give users $100,000 in pretend money to start. From there, players pick stocks to purchase; most of the stocks are those that are available on the New York Stock Exchange (NYSE) and Nasdaq.
The best stock simulators also charge broker fees and commissions. These charges can significantly affect an investor's bottom line, and including these in simulated trading helps users learn to factor these costs in when making purchasing decisions.
Investopedia offers a stock market simulator that gives players $100,000 in virtual cash to put their trading skills to the test by competing with thousands of other traders.
Stock Simulators in the Classroom
When it comes to learning, people love games. Students also pay attention better when classroom work relates to real-world scenarios. This applies to adults, too.
Investing simulators have frequently been used in a classroom setting in which students compete against each other to see which student or group of students can produce the highest gains in his or her account through trading stocks and options. In the course of the competition, students also learn how to budget money, use comparative math, be part of a team, think critically and make decisions quickly.
Henry Ellington, Monica Gordon and Joannie Fowlie, three experts in the field of education, explain in their book "Using Games & Simulations in the Classroom" (1998):
"Multidisciplinary exercises have an additional advantage in that they can provide a situation in which participants have to work together effectively to achieve a common end. Interpersonal skills of this type are very important in later life and constitute an arena of education and training in which the multidisciplinary stimulation and simulation/game may well be the only means of providing practical experience in a school or college environment."
Along the way, those who work with investing simulators, whether students or adults, will learn about the basics of finance, including the basic terminology of investing, such as commissions, shorts and P/E ratios. Simulation also makes it easier to see how the greater economic picture and business-related headlines affect markets and cause price changes in stocks. (For mores, see: Stimulate Your Skills With Simulated Trading.)
The Bottom Line
Every good teacher knows that making learning fun makes for good learners. By using online stock simulators, teachers can transform lessons about investing into a true classroom event, while adults can learn to invest in a realistic setting, thus developing useful skills that can be applied to a real trading account. With any luck, a simulator will allow uninitiated investors to hone their investing and trading skills in a simulated environment. This should help new traders hit the ground running when they finally buy shares in a real company - and avoid some of the major losses that arise from inexperience.
For more, see: Simulator How-to Guide.