Stock Market Simulator

A stock market simulator provides you with a computerized stock trading dashboard in which you are allowed to trade stocks using virtual money (fake money). The simulator is a replica of the real market, for example, if Microsoft goes up $0.50 in real life then it will also go up $0.50 in the simulator (its a big copycat of the real market). You start out with a certain amount of virtual cash and can make investments and watch them grow (or fail!) without worrying about losing your real money. You have heard of fantasy football, or fantasy baseball. Well, this is a fantasy stock market!

This will give you an opportunity to test out your newly acquired knowledge and strategies in the stock market without risking your real hard earned money.

Start testing the stock market for free with the Investopedia Stock Market Simulator.

You don't always have to learn the hard way.

You shouldn't have to lose thousands of dollars in the stock market before saying, "ok, I think I need to find a better strategy." The problem with the stock market is that anybody can join at any time. Would you try out for a baseball team if you've never even played baseball before? Of course not!

The reason so many people lose a fortune in the stock market is simply because they are not educated about the market, they jump in too soon, and they want to get rich quick. If you don't learn all you can about the market first, then you are setting yourself up for failure. Before you dive right in and start investing your capital you must first learn all you can about stocks, and a stock market simulator will help you get a feel for the market. There are obviously many advantages for using a stock market game (or simulator) as well. Lets take a look into the cons.

If you have never invested in the stock market before, then you really need to learn about stock market psychology.

Different Psychological Approach

When using virtual money to practice on a stock simulator online, you do not have the same emotions that you would when your real money is at risk. If you are using fake money then you will be able to invest all your money in a stock with a one in a million chance of tripling in price, and you will be able to sleep at night. You would NEVER do that with real money.

When using real money, your emotions will have a major influence on your decisions (unless of course you can control your emotions). This is the only problem with practicing strategies using virtual money. Using stock market simulators is still an excellent tool for testing your strategies, but the point here is that just because you might execute the perfect moves in a simulator or stock market game doesn't mean you will be able to do it in real life as long as real emotions are influencing your decision making.

Lack of Fear

Fear can take over your mind in the blink of an eye. When the mind senses fear, your natural instincts come alive and your reasoning is distorted. People act unreasonable when they are afraid, and people become afraid when their money is at risk. You may be a very reasonable person, but when you experience the real emotions of the stock market your seemingly reasonable judgment will become impaired (unless you learn to control it). These emotions are absent from paper trading.

Not Selling When You Should

Greed is another emotion missing from online stock market simulators that you will experience in the real stock market. In a stock simulator, you may experience a nice profit and simply sell once satisfied. That might not be so easy in the real market. When you experience a large profit of real money, you will think, "This is great, lets see how much more I will make!" Greed can cause you to lose money. Say you hold on longer for more money but the stock ends up going down. You will now have less profit than before and you will now be tempted to hold on even longer in order to gain back the profit you just lost. As you hold on even longer, the stock may drop even lower and you can miss out on what you could of gained.

Selling Too Early

You just saw how not selling when you should can get you in trouble, but now you need to make sure you know not too sell too early either. In the real stock market, you might experience a quick increase in price and decide to take your profits immediately because you are scared to lose them. This can obviously be a problem as you may miss out on the larger gains. The point is to be able to know when to sell, and in a stock market simulator or with paper trading it doesn't really matter when you sell because it is fake money - it doesn't get your emotions boiled up. You don't want to sell too early and miss out on future profit, but then again you don't want to sell too late and miss out on gains you could have locked in.

The emotions of investing, such as greed and fear, can strongly influence your decisions and result in bad choices. So how do you control them? In order to control them, you must understand them. You must understand and be aware of what is going on. When you want to buy a stock, you have to make sure that you want to buy it because of sound judgment and not because you heard some "exciting news on TV." If you are going to invest in the stock market based on emotions then you are better off gambling in Las Vegas. If you are serious about investing like a professional then you will greatly benefit from the following book written by one of the most respected traders of all time (he is my personal favorite).

This book is the complete guide to understanding stock market psychology and how to profit from it. Think of it like this: what is the best time of year for a beach resort to offer discount deals and host events on the beach? SUMMER! This is a no brainer, and it is due to psychology; everybody is in the "getaway and have fun in the sun" mood. The resorts know this and take advantage and profit from the mood of the people. You can learn all about how mood affects the stock market and how you can profit from it (and avoid losses!) by investing a week into reading the book listed below: