Think you can beat the Street? Have you spotted a company you just know is going to go through the roof? Got a gut feeling about a hot initial public offering? Before you bet the farm, try testing your theories without risking your hard-earned money.

Welcome to the world of stock market simulators.

Practice Your Skills

Stock market simulators are online tools that allow investors to practice their stock-picking skills without investing real money. Investors log on, set up an account, and get a set amount of simulated money with which to make simulated investments.

Key Takeaways

  • For beginning investors, stock simulators are a great way to develop investing skills.
  • Experienced investors use simulators to evaluate trading strategies before trying them in the real world.
  • Try a stock market simulation competition to test your skills against real opponents with fake money.

The best simulators can support equity trades, options trades, limit and stop orders, and short selling. Like online brokerage accounts, they adjust for most corporate actions such as splits, dividends, and mergers.

In short, an investor can test virtually any trading strategy without risk.

Beginner Benefits

For novice investors, using a simulator is a great way to learn about investing. They can learn about basic investment concepts, get used to reading stock tables, get a sense of the impact of market volatility, test trading strategies, and much more. News features provide insight into real-world events, such as corporate scandals, earnings news, and the effects that upgrades or downgrades issued by Wall Street analysts have on stock prices.

They're also a great introduction to investor research. Simulators generally offer a host of tools, including historical prices, performance charts, price-earnings ratios for specific securities, and historical trading data for various industries and indexes.

Expert Investors Take Note

Stock market simulators can be valuable tools even for experienced investors. They use them for the opportunity to test-drive complex trading strategies in a safe environment.

Following the results of a simulated trading strategy over time helps the investor refine skills before testing them in the real world. Research tools enable investors to monitor IPOs, track trading volumes, and build customized screens based on technical and fundamental criteria.

Tap Into Real Resources

As helpful as they can be, simulators are just one tool for the investor. There's no reason not to use others. Listen to tips from your broker, read newsletters written by stock-picking gurus, and follow the financial news. It's all fodder for your simulated investment portfolio.

Those other resources are more fodder for the simulator.

Simulators can even teach you something about yourself. Your reactions to the movements of your simulated portfolio give you a sense of how you will react to similar movements in a real-life portfolio.

Learn From Others

Some online sites run stock market simulation competitions that give players an opportunity to win real money. These competitions can be a great way to pit your strategies and skills against those of other investors.

A bad decision in simulated trading is easier to get over than a big mistake in the real world.

Even if you don't find your name at the top of the leader board at the end of the competition, you'll still be able to observe and learn from the winning strategy.

The Limits of Simulation

There is no doubt that simulators are good tools, but even the best of them can't fully replicate the real thing. They offer fewer securities and more restricted trading parameters than the actual global financial markets.

A simulator may not allow trading foreign stocks or penny stocks. There may be a time delay in the data feeds, which means your trade won't be executed instantly, as in real life. Investopedia's Simulator, which is free, has a 15-minute time delay.

Best of all, mistakes made in simulated trading are easily forgotten. You'll never regret losing $10,000 in pretend money with a trade in a high-risk biotech stock.