Learning about trading and aggressively picking stocks can be fun, but it can also be a disaster for your investment portfolio. Fortunately, investors can get the best of both worlds by aggressively “paper trading” in a practice account while prudently investing their savings in diversified, passively managed, low-turnover exchange-traded funds. This strategy provides the entertainment from stock picking and the experience of making trades without any of the risks.
Select a virtual stock exchange website with attractive features. To make your trading game fun, make sure that the interface is comfortable. Many sites offer contests, promotional deals and awards. Some discount brokerages, such as E*TRADE and optionsXpress, allow players to sign up for virtual trading accounts for free. Players can also trade at virtual stock exchanges hosted by other websites like MarketWatch, UpDown and Wall Street Survivor.
Register for your free virtual account. Typically you need to pick a screen name and provide some basic identifying information. Do not supply any financial information to enroll in a virtual stock exchange, and uncheck any boxes that would put you on email lists or mailing lists.
Research your virtual stock picks. You can test trading strategies and stock screens through mock trading without the risk of loss. If you are looking for ideas, many virtual trading sites provide discussion boards. Financial websites like Bloomberg, Yahoo Finance and Google Finance are also useful sources of trading ideas.
Make your trades. You will need to choose between market and limit orders for your stock picks. Use the website to check which trades have already been executed and which have been made but are still pending.
Monitor your progress. The best feature of a mock trading account is its ability to track the performance of your trades. You should be able to click through the virtual stock exchange website to see how your account has grown or declined in value and how much money you have made on each trade.
- For shorter trials, it is better to load up on risky stocks and to concentrate your holdings only a few stocks. This is contrary to diversification, a concept that should be adhered to in real-money investing.
- Some virtual trading platforms now provide mock trading for stock options.
- Do not think that successful results are proof of stock picking skill. Changes in the capital markets are largely random, and your account’s success or failure could be luck.
- Virtual stock exchanges may not accurately reflect the cost of real trading, especially for illiquid stocks, short selling, and trading on margin.
Joe Escalada is a financial analyst. He earned a Master of Business Administration from the University of California at Davis and has passed all three Chartered Financial Analyst examinations. He has a bachelor's degree from the California Institute of Technology.