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 on 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 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 test your investing skills or hone them.
  • For experienced investors, simulators are a fail-safe way to evaluate a strategy before trying it in the real world.
  • Try a stock market simulation game online to test your skills against real opponents but with fake money.

The best simulators can support equity trades, options trades, limit and stop orders, and short selling. Like online brokerage accounts, they can 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 for more experienced investors. Simulators give advanced users 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 their technique 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.

Tap Into Real Resources

The tools built into a simulator are just the tip of the iceberg. There's no reason not to use some of the many resources available to investors. Keep listening to tips from your broker, and read newsletters written by stock-picking gurus. It's all fodder for your simulated investment portfolio.

Regardless of the resources you use or the strategy you employ, simulators give you a chance to construct a portfolio and find out whether your research correctly identifies winners or losers.

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 just how you would react to similar movements in a real-life portfolio. It also helps you figure out when you would cut your losses and sell and when you would take your winnings off the table.

Learn From Others

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

Keep in mind that 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 still get a chance to see what the winner bought and learn about 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.

For example, a simulator may not provide the ability to trade foreign stocks or penny stocks. There may be a time delay in the data feeds, which means your trade won't be executed instantly. For example, Investopedia's Simulator has a 15-minute time delay. By contrast, most real market trades are immediate.

Simulated trading is simply an easier game to play—and one in which mistakes are easily forgotten. You might find it easier to invest $10,000 in pretend money in a high-risk biotech stock than to invest in that same stock with your hard-earned cash.