Can a trading simulator help you make better investments?

The rise of online trading has offered everyday investors greater access to tools designed to help them make better investment decisions. One of the more intriguing tools that stock market beginners have at their disposal is the trading simulator.

Hosted on a virtual trading platform, a trading simulator (also known as a “paper trader”) lets users experiment with new stocks, alternate investment strategies, and other stock market mechanisms, all without risking any actual money. It serves as a model for projected stock performances and a test-drive for different investment scenarios.

Can the best trading simulator help you — the everyday investor — to improve your real-world stock market results?

Can a trading simulator help you make better investments?

What is a Trading Simulator?

A trading simulator is just what it sounds like:  A virtual trading platform that lets you set up a mock portfolio to practice making securities investments. It’s a bit like fantasy sports games in which you try to build the best roster, making faux transactions throughout a season.

In a trading simulator, you can test-drive certain investment techniques to see how they would affect your overall profitability if you were investing real money. It’s especially good for beginning investors who are looking to get a good feel for how the securities markets work.

Advanced investors can use trading simulators to test out new strategies or study the performance of investments they’re interested in, but might not be ready to buy into.

How is a Trading Simulator Beneficial?

Using a virtual trading platform to practice trades benefits prospective investors in several ways, which include:

It’s Risk-Free

In a trading simulator, everything is virtual. You aren’t dealing with real cash, and your gains and losses are pretend. It’s a sandbox for playing with different approaches to the securities market, but you don’t risk losing anything of real value.

It’s Educational

For people who are just getting into the securities market, a trading simulator is a hands-on way to get familiarized with the inner workings of the stock exchange. Coupled with other teaching materials, a trading simulator can help you to understand the ebb and flow of the investment market.

It’s Experimental

A trading simulator is a sort of laboratory for your wildest investment ideas. You can model a portfolio any way you like:  Focus on a particular business sector, load up on ETFs or mutual funds, test-drive emerging small-cap companies, build a roster completely made of international companies, or anything you like.

It Encourages Research

You can think of a trading simulator as a form of research, a skill that every investor needs to cultivate. Searching for facts and data to reinforce your investment decisions is something you should actively do when you’re using real cash.

It Curbs Emotional Decisions

The securities market is especially inhospitable to “gut feelings.” Using a trading simulator helps you learn how to make disciplined decisions based on data, metrics, history, trends, and hard information, steering you away from transactions built on a mere “hunch.”

How to Use a Trading Simulator

Trading simulators typically come in one of two different models:  Competitive and stand-alone.

Competitive trading simulators are more similar to fantasy sports games. You join a virtual “league” and pit your mock portfolio against other players. Whatever portfolio earns the most value over a certain time “wins.”

Stand-alone trading simulators are more appropriate for investors looking for a real, helpful tool to improve their securities picks. As in the real stock market, success is measured as “beating” the growth rate of certain stock indexes, most commonly the S&P 500. If you maintain an average growth rate that’s consistently higher than that of the S&P 500, you’re a “winner.”

While competitive simulators may provide as much entertainment as helpful stock market advice, a virtual trading account is more reflective of how the stock market works. Retail investors generally aren’t trying to defeat other investors; they’re trying to construct the most profitable portfolio they can.

The transactions on a trading simulator work exactly as they do on the stock exchange. The closer a simulator gets to a real-world business model, the more relevant it is as a training tool.

Can a trading simulator help you make better investments?

How to Get Started on a Trading Simulator

Many, but not all, of the real-world online brokerages offer trading simulators as a part of their services. Most online brokerages require you to set up an account to use their simulators. This may entail a fairly long sign-up process in which you volunteer a bunch of personal and contact information.

Non-brokerage websites also offer online trading simulators that may not require new users to jump through so many hoops to get started. Some of them also offer league play, in which you compete against other players’ simulated portfolios.

Once you set up a virtual trading account, you’ll either be asked to set a budget or simply be assigned one. You’ll then make mock transactions, much in the same way as you would with a real stock portfolio.

You can try out a variety of different investment scenarios, like creating your own ETF:  Trading entirely on growth stocks, focusing on individual business sectors, working with specific market caps — literally any plausible (or even implausible) stock trading strategy or approach.

What is the Best Trading Simulator:  A Few Contenders

Trading simulators come in all types and styles. Some offer simulations on all kinds of securities trading:  Stocks, bonds, options, funds, and so forth. Others concentrate primarily on specific investment instruments. Some are entirely free; others require a monthly or annual subscription.

Virtual trading platforms are often made available through regular, fully functional, real-world brokerages; others are completely independent entities unconnected with investment institutions. We’ll take a look at some of the best of each type.

Online Brokerage Trading Simulators

If you’re already signed up with an online brokerage, there’s a good chance you have already have access to a working trading simulator. Some of the best-known virtual trading platforms from actual working brokerages include:

TradeStation thinkorswim Simulated Trading

TradeStation’s virtual platform is especially good for running automated investment scenarios, price-based strategies, and stop orders.

TD Ameritrade paperMoney Virtual Stock Simulator

After the TD app thinkorswim is installed, the PaperMoney simulator encourages deep research into stock positions, some basic stock strategies, options, futures, and forex markets. You can also reset your portfolio if you’ve hit upon a bad (fake) streak.

Interactive Brokers Paper Trading Account

After you’ve set up an actual trading account with Interactive Brokers, you can obtain access to their Paper Trading simulator with a generous balance of $1,000,000 in pretend money.

Webull Paper Trading

The relatively young financial service company Webull has garnered acclaim for their free stock trading simulator, which also comes with a cool million dollars in play money. It’s advertised as a helpful application for both new and veteran traders.

NinjaTrader Simulator

One of the many apps offered by NinjaTrader, the Trader Simulator makes extensive use of back testing, customizable charts, and “replays” of historical market data for adventurous traders already on the NinjaTrader platform.

Independent Trading Simulators

Some of the top virtual trading platforms without official ties to working brokerages include:

Wall Street Survivor

Wall Street Survivor is one of the best investment education sites, covering all the fundamentals of financial investment. Their trading simulator has been around for years and is routinely acclaimed by many as the best trading simulator.

New users get a $100,000 budget to start. The Wall Street Survivor virtual trading platform also encourages you to make progressive investments and practice new strategies.

Unlike most other simulators, the Wall Street Survivor also offers achievement badges and occasional prizes — sometimes actual, real, spendable cash.

MarketWatch Virtual Stock Exchange

MarketWatch is one of the most trusted sources for investment news and information. Their Virtual Stock Exchange game operates on a league model, where you can join an existing league or create one of your own. The MarketWatch simulation encourages progressive investing — in other words, once you’ve gotten the basics of stock trading down, you can enable advanced features like stop loss and limit orders.

HowTheMarketWorks Simulator

Another perennial contender for the best trading simulator, HowTheMarketWorks’ paper trader is especially geared to help beginning investors. Starting with $100,000, paper traders can invest as simply or as complexly as they like.

The overall goal of HowTheMarketWorks is to ensure a full understanding of financial tools, so there are ample resources and research papers that traders can take advantage of while building their portfolios:  Analyst ratings, financial statements, news and events, and so forth. ETFs, mutual funds, options, and futures are also available, making this simulator attractive even to veteran investors.

When choosing a trading simulator, look for one whose ease of use corresponds to your overall level of investment experience. Some simulators come with fairly basic features, making them simple to use for educational purposes. Others offer more complex investment options, automated scenarios, and richer arrays of features that advanced investors may find important.

If you’re entirely new to the trading game, treat a trading simulator as an educational tool — once you’ve nailed down the fundamentals, use the virtual platform to progressively learn about more elaborate or complicated stock market concepts.

Can a trading simulator help you make better investments?

Help from Gorilla Trades

Whatever level of experience you may have in the stock market, Gorilla Trades can position you toward real profits with our heavily vetted, thoroughly researched stock picks. To learn more, set up a free trial.