Play the Market—Enjoy Virtual Stock Trading

August 13th, 2008

It’s Only “Monopoly Money”

Playing the stock market as a virtual trader can be fun. There’s no money at stake and one can gain experience in trading shares using actual prices under realistic market conditions.  Virtual stock trading or “paper trading,” is done by the manipulation of imaginary money and investment positions that behave in a manner similar to the real markets.  Before the widespread use of online trading for the general public, paper trading was considered too difficult by many new investors. With computers now doing most of the calculations, novice investors can practice making fortunes over and over again before making any financial commitment.

Stock, Options, Calls—Whatever You Choose

Virtual stock markets allow you to trade stocks, options, spreads, straddles and covered call trades. Investors with more experience use paper trading to test new and different investment strategies. For example, investors can create several different positions simultaneously to compare the performance and payoff characteristics between multiple strategies. Writing a covered call is technically the same as writing a naked put, but in practice there are subtle differences. With a paper trading account, an investor can set up a bull credit spread and a bull debit spread simultaneously and analyze the payoff for each position change as the market moves. Investors can “virtually” test advanced strategies such as leverage, short selling, forex and derivatives trading without the risk involved in real trading. Many virtual markets include stocks traded on NYSE, NASDAQ and AMEX and allow trading at any time, even when the real markets are closed.  They also permit the purchase of unlimited shares of any stock at the Last Price, an action not allowed in real life where shares are limited and certain prices are not guaranteed.

Various companies and online trading simulation tools offer paper trading services, many are free, others charge.  Some virtual stock markets offer research data such as integrated stock and option quote detail screens and quotes in real time. Traders can analyze their performance, have available live chats with people “in the know,” and be sent reminders on their stock positions.

Virtual Stock Games and Competitions

Virtual Stock market games and virtual stock competitions allow the trader to create public or private games with a pre-arranged cash balance or he can choose from thousands of available games. Stock market games are relied upon by investors of all levels including MBAs, financial professionals, investment clubs and college-students. Competitions can be weekly, monthly or quarterly and can start with as little as $10,000 and go as high as $500,000 per game.

Last 5 posts by David Maxwell

• Dow Jones Sinks 514 Points While Dollar Reaches 2-Year High - October 28th, 2008
• $700 billion Bailout Bill Approved by Congress - October 8th, 2008
• The Pros and Cons of Online Trading - September 23rd, 2008
• Leave Wall Street behind and go Virtual… - August 3rd, 2008
• Online Virtual Stock Trading – A Beginners Guide Part III - July 12th, 2008

Entry Filed under: Stock Trading Essentials