Virtual Trading: How Stock Market Simulators Work

These brokers have stock simulators that let you virtually test drive their platforms and try out investing new strategies.

Dayana YochimOctober 6, 2020

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There’s nothing wrong with a little friendly investing competition.

Stock simulators work by giving participants a set amount of play money and a time horizon. The investors who generate the highest returns are technically the “winners,” but there are no losers here — the funds are fake, so there’s no risk. But what’s best about stock market simulators is the invaluable experience they provide new investors. Anyone can get their feet wet in a simulator before diving head first into the real stock market, where real money is at stake.

» Want a leg up on the competition? Read all about how to buy stocks

Best online brokers for trading practice

In the real world, investors aren’t competing against other players’ returns. “Winning” is about equaling or exceeding the performance of a benchmark index.

For example, if you’re picking and choosing individual stocks and after five years your average returns are less than the returns of the S&P 500, you may be better off investing in a low-cost index fund that tracks the S&P 500. However, if you manage to beat the index with your stock picks (mind you, research shows this is unlikely, even among professional investors), you could say you “outperformed” the stock market.

In the real world, success isn’t determined over weeks or months, but years.

For a virtual-trading practice environment that's close to the real thing, you can’t get much better than the simulated investing platforms offered by actual working online brokerages.

In the real world, success isn’t determined over weeks or months, but years.

These practice accounts — sometimes called paper trading accounts — typically mirror the broker’s working trading platform.

Most are free, although they may require you to set up an account. The best brokers give test drivers access to a fully functioning setup with the same tools that active customers use: watch lists, stock screens, research and live or slightly delayed data feeds.

Stock simulators offered by brokers

Interactive Brokers paper trading account

Interactive Brokers’ stock simulator lets investors test out advanced strategies and products, simulating stock scenarios on multiple exchanges. All you need is a regular trading account to get started — the paper trading account comes free with it.

TD Ameritrade Thinkorswim paper money account

TD Ameritrade’s stock simulator gives investors the chance to practice placing advanced orders and has a backtesting function, which shows how well a stock would have done using historical data. Investors start with an account funded with $100,000 in practice money.

It can also help investors learn foreign exchange and futures trading, and provides access to a virtual margin account for more advanced investors.

You can get a free trial of the program by registering with TD Ameritrade. If you’re already registered with TD Ameritrade, you’re already registered for paperMoney.

TradeStation Simulated Trading Account

With TradeStation’s stock simulator, investors can practice strategy automation and placing advanced orders, and explore alternative market types.

The company boasts that its users have access to a comprehensive market database that allows for thorough backtesting, and it has several checks in place to ensure you always know whether you’re in your simulated account, or a live, funded account.

Nerd tip: If you're interested in checking out a broker that doesn’t offer a paper trading platform for potential customers, or if the qualifications for signing up are too onerous, contact customer service and ask if it can provide temporary access to a demo account.

4 reasons to try a stock simulator

  • You’ll get a general investing education. Many of these platforms offer a very real education in investing, with a library of articles, tutorials, demos and, at some brokers, the chance to interact with an online community available to answer technical and investing questions.

  • It’s a safe space to learn the mechanics of placing trades and building a portfolio. There’s a reason student drivers take the wheel for the first time in abandoned parking lots. The best place to make all the rookie investing mistakes, such as mistyping ticker symbols or misunderstanding order types, is wherever you can suffer the least financial damage.

  • You can test drive new investment strategies and types. Looking to expand your investing repertoire? Trying before you buy is especially important when venturing into new strategies, like shorting stocks and trading options, and more sophisticated investing fare such as futures and commodities and foreign currencies (forex).

  • You’ll learn the importance of keeping emotions out of investing. As billionaire investor Warren Buffett says, one of the keys to being a successful investor is the ability to control the emotions that lead other investors astray. Even though investing decisions are less loaded when there’s no real money on the line, the brain doesn’t always fully absorb that concept — think haunted houses, roller coaster rides and movies featuring vintage dolls that come to life and carry out evil capers after dark. The emotions you experience while investing in la-la land provide a preview of what to expect when you encounter the real and unavoidable market ups and downs.

» Looking for some fresh ideas? Read up on these stock market strategies for beginners

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