Financial experts make it sound so easy: just invest in the right stocks, and earnings will skyrocket. Before they start investing their hard-earned money in the stock market, many people take advantage of online practice stock trading. Also known as stock simulators and stock market games, online practice trading gives people the opportunity to test different investment strategies in real market conditions.
Online practice stock trading allows investors and potential investors to trade virtual stock based on real stock market prices. The primary difference between practice stock trading and real stock trading is that the practice trading account uses virtual dollars to make investments, not real money.
Opening a virtual trading account is usually free or very low-cost. The account will be funded with a basic opening balance of virtual dollars. Over time, practice investors can add more virtual money and build more trading confidence before they invest real money. Classrooms, investment clubs and investment coaches all use online practice trading to teach different concepts about investing in the stock market.
One of the first things practice investors should do is develop a trading plan which includes pre-determined levels of entry, exit, and risk management. A practice or simulated trading account allows investors to discover the effect of their trading plan. They can see how their ideas work, how real stock ordering works, and they can monitor their virtual portfolio.
Another advantage of online practice stock trading is flexibility. Investors can test their skills, try experiments with different stocks and strategies, or use different risk-management tools to assess the levels of risk they would be comfortable with when it comes time for real investment. All virtual stock trading platforms allow investors to enter virtual orders to buy or sell, and will also allow them to track account performance.
As an example, a virtual stock trading game or program can teach investors about concepts such as the difference between absolute and relative returns on investment. An absolute return on investment is the amount that the investment has earned over a certain period of time. A relative return on investment refers to the difference between the specific investment’s earnings and whether or not it was more or less than the performance of the stock market as a whole over a certain period of time. An investor who bought $100 of a stock at the beginning of the year, and had $110 at the end of the year has an absolute return of 10%. If the stock market overall returned an average of 5% over the year, the investor’s relative rate of return on investment would be 5%.
Most people who have tested their investment ideas in advance using practice stock trading platforms online are glad that they took this route before they risked their real money in the real stock market.