There is no lifeguard when it comes to using real money in the stock market. Jumping into the deep end opens you up to all the risks that come with not knowing what you are doing. Practicing is one of the best ways to get the hang of all the complexities of trading in the stock market. There are a lot of options for virtual trading, but to gain the most benefit you have to make the experience as close to real as possible.
Virtual stock market trading, also referred to as practice accounts, allow you to explore the world of investing and test a variety of strategies in a simulated environment.
Finding a Practice Brokerage Account
A few brokerages provide "paper trading" accounts that let participants "invest" with imaginary money. TD Ameritrade offers one through its ThinkorSwim platform. ThinkorSwim is also a trading platform, but it tends to be very dense and aimed at serious professionals. TD Ameritrade also has a simpler interface that is more user-friendly with many tools of its own, but without a paper trading account. OptionsHouse offers a paper trading account that is identical to its interface for normal trading.
Avoid Delayed Quotes
If you are using a practice account completely for free, you are likely to receive delayed quotes. This might be suitable for practicing long-term investing, but you need real-time quotes if you are practicing to be an active trader.
Even for long-term investing, delayed quotes can be annoying. That's because most practice accounts initiate your trade against real-time quotes in their servers, while showing you delayed quotes. So you have no idea what order to put in properly. OptionsHouse offers real-time quotes in its practice account if you make a minimal deposit into a real account. There seems to be no way to trade on ThinkorSwim with real-time quotes unless you open an actual account and switch back and forth.
There are pure stock market games online that follow the market and are not like brokerages. However, you cannot practice with all the tools that brokerages give you, and they will have delayed quotes.
Stock Market Games
Games are probably the most fun way to learn about trading, but the least beneficial. Every game is different, and their usefulness depends on the specifics. Games can teach you the mechanics of trading, and if they're designed to be accurate, they can help teach how stocks move.
Games are pretty pointless for charting. They're either deterministic, or they have planned randomness that rules out chart patterns. These games are useful for only the most basic understanding. The benefit is that you can practice a little in the off-hours.
Just keep in mind that with games you will not learn how the real market moves, because that would require programming mass human behavior.
Important Warnings and Tips
The weirdest thing about practice accounts is that with the risk of loss taken away, you are free from concern. Playing a game, or practicing without risk, is not the same as the real thing. You might make decisions that you would not normally make. Think about playing any video game: Would you take the risks in your own life that you make your character take?
To whatever extent you can, try to make it feel real. Set the amount of money in your practice account similar to what you have to trade with. There is no point in trading with a million dollars unless you have that much.
Nihar Patel covers finance and investing for several online publications, including Seeking Alpha. He also runs his own investment analysis website. Patel holds a J.D. from UC Hastings College of Law, as well as a bachelor's degree in political science and history from UC Davis.