Stock Market Simulators - What are They and How to Use Them Correctly?

Stock Market Simulators - What are They and How to Use Them Correctly?

In this article we will deal with an important issue in the training of every trader: What is a stock market simulator and why is it an essential element during our learning process.

Besides that, we will give you some keys so that you can really get the most out of this tool.

It is not only beginner traders who are in training who make use of the trading simulator. There are a large number of professional traders who also use it frequently to try out new investment strategies,... The stock market simulator is present throughout a trader's professional career. However, it is especially relevant during the training stage.

What is an exchange simulator?

The stock market simulator is an investment platform, in which the trader can carry out practices without putting his own money at risk, due to the fact that the operations are carried out with virtual or fictitious capital.

There is a learning procedure in certain professions based on simulations (airplane pilots, firefighters, astronauts, etc.) in which, given the importance and risk of the activity, it is necessary to work on all possible situations and incidents that may occur under a controlled scenario. When it comes to financial investments, not learning to operate in the financial markets properly also has an important risk: losing your money.

Moreover, in this case, gaining experience can cost money with the practices. There is an economic cost to carry out failed, trial or wrong operations while gaining experience and security in the markets. This cost does not have to be assumed, or at least can be minimized, by incorporating a stock market simulator into your learning process.

In these programs, based on an identical version or very similar to a real trading platform, the beginner trader has at his disposal the possibility of carrying out operations as if he were really investing with his own money.

Trading is based on buying and selling financial assets in order to profit from the change in their value. However, it requires a fairly thorough learning process. It's not just about knowing how to place orders on the market, it's about testing ourselves as traders. To forge our style; to assume our mistakes; to refine our strategies; to manage risks; and to control our emotions.

In short, a stock market simulator is a program to operate in the financial markets in real time, but with unreal money. An internship program designed for more complete learning.

A stock market simulator is also called "demo account" by some intermediaries or brokers.

How does an exchange simulator work?

There are several types of trading simulators, or stock market simulators. It is possible to find some on the Internet for free although some of these simulators often have a deficiency: They do not allow a complete technical analysis.

On the other hand, there are stock market simulators, also free, offered by a series of online brokers. They are called "demo accounts" and their purpose is to become familiar with the investment platform offered by the broker and they usually have a wide range of tools to analyze the market and everything necessary to open, control, edit and close operations all with virtual money in conditions practically identical to doing it with real money.

On the other hand there are also some other payment simulators, generally specialized in specific markets such as Forex Tester for the Forex currency market.

In this article we will focus on the stock market simulators (demo accounts) offered by most online brokers.

A stock market simulator should allow the development of a series of competencies. Learning all these issues, on the other hand, takes time. Therefore, it is recommended that the time of use of the trading simulator be unlimited or at least long enough so that the trader can familiarize himself with the operation of the platform without haste.

From a more practical point of view, an exchange simulator can be accessed by simply registering from the website of the broker we have chosen (as we have said, it is usually free). Once registered, the supplier who supplies us with the software will give us access to it. Actually, it is a very simple procedure.

There are stock exchange simulators to download to the computer and others that work from the web. For mobile devices there are also stock market simulators for android or iOS and it is usually necessary to download a trading app in all cases.

In short, an exchange simulator works in the same way as a real platform, when it is a demo version of a broker. It doesn't usually have technical limitations. One of the aims of the simulator is precisely that the trader knows how to operate on the platform, and for this reason it is designed in an identical way.

What is the difference between a trading simulator and a real trading account?

Beyond the fact that an exchange simulator works with virtual money and this is the biggest difference, there are a series of differences between these programs and real trading (More info: Differences between a Demo Account and a Real Account). The most important differences are not related to the way they work at a technical level but are based on the trader's own attitude towards the simulator.

These differences can make the simulator not as effective as it should be in the learning process. The trader must overcome this, if he wants to obtain all the advantages that a program of these characteristics offers us. In other words, the differences are perfectly correctable as long as the trainee trader does his part and works for it. For this reason we are going to give a series of keys as we explain them:

The level of capital is not the same:

The first difference is very simple. It is determined by the high level of available capital that a simulator usually offers. Naturally, this money is not real.

What effects can this have on the trader? Simply do not carry out an exhaustive management of the money in the account, open positions of a larger size than you could with your own real money and lose the notion of risk control.

10,000, 20,000, 50,000 and even more (dollars, euros or any other currency) are usually amounts that we have perfectly available for simulated trading. Honestly, how many traders go on to trade a live account with these capital levels from the beginning?

As you can deduce, having such a large amount of capital can be a drawback because we will be leaving aside an extremely important part of the learning process: to calculate well the risk we assume per trade and open the position with a consistent size.

There are some simulators in which it is possible to choose the amount of virtual capital to manage. If you have the possibility, it is advisable to choose a sum that can adjust to the reality of what you could manage in a real account. If it is not possible to choose you can work with only a part of the virtual capital and omit the rest when making trades.

Some trading simulators also allow you to reset and return to the beginning with all the virtual capital they offer. This may mean that the trader is not aware of the need to protect capital.

This goes hand in hand with another issue, the fact of opening a trade for the simple pleasure of being in the market. Since real money is not at risk, this type of temptation can arise. This is another mistake. Every entry (and exit) into the market must be justified.

Therefore the important thing is to work with the trading simulator as if it were a real account and your money was at stake.

Emotions and discipline are not the same:

There is a big difference in the treatment and management of operations when trading with a trading simulator as opposed to doing it with real money. Real trading has a psychological component that an exchange simulator cannot offer.

The testing stage on a demo account is an important part of the overall trading training plan, however, during this stage, there is no guarantee that the trader will develop all his skills if he does not treat a simulator with due respect.

In order to explain this better, we are going to resort to an example of a very typical error: Not respecting the Stop Loss.

Stop Loss is a stop order when the market turns against the adopted position. A close of trade that the trader is recommended to leave pre-established even before opening a position in the market. It is a price level at which losses are accepted and cut, closing the trade and assuming that the strategy was badly thought out.

It is common among successful traders to accept small losses, it is a part of trading. Not all trades can be profitable and in order to protect our capital a stop loss is set. This order represents the maximum risk and everything related to managing risk is of vital importance in trading.

Therefore, when designing the architecture of a trading operation, a Stop Loss order is established. This function is available in the simulator and must be used.

The trader may be tempted to modify or even delete this order. You may see that the trade is developing against you and the price is getting closer and closer to the price level where the Stop Loss was placed. At this point the trader feels the need to deny losses and widen his margin of error.

So what should a good trader do in this situation? The answer is clear and simple: You should always respect the Stop Loss order.

If the trader, while trading in the simulator, modifies this order and assumes more risk than he had at the beginning, he can have a much greater loss. However, as it is fictitious money, the trader will have no qualms about assuming more risk.

What is the final consequence? The trader is operating without the required discipline and is creating bad habits. He is not performing a clean and quality operation. When trading in real, failure to respect a Stop Loss order can result in a severe loss, or at least greater than the planned loss.

If we do this in the stock market simulator and do not work on aspects such as dealing psychologically with losses, we will not become successful traders.

By trading in simulated we won't have the psychological pressure to see how the trade doesn't go as expected. In reality, emotions intensify and we will have to be trained to face them.

If we make these kinds of mistakes, due to lack of discipline, we will be damaging our learning. All mistakes and bad habits must be removed during the simulation stage. This can only be achieved by working on the stock market simulator with discipline. A simulator is fun, but we have another objective: To forge ourselves as traders. It is not about "playing to invest" with a stock market simulator.

In short, we can cite a list of bad habits and mistakes that the trader should try to avoid in the simulator:

  • Not respecting Stop Loss orders (we have seen this in the example).
  • Trade with too big trading sizes (this has also been discussed above).
  • Try to recover losses soon (keep a cool head).
  • Trade without a trading plan (we can't trade by trading or based on chance).
  • Do not detect emotions (such as anger, fear, frustration, etc.) and try to work on them; because these emotions will intensify when trading with real money.
  • Do not define your own trading style.

What are the advantages of an exchange trading simulator?

A simulator offers multiple advantages; and not only for those who are in a formative stage.

Familiarize yourself with the management of the trading platform:

As a first point, it is absolutely necessary that the trader manages in an impeccable way the platform in which he is going to develop his real operative. It is his working tool and he must know it in depth. All the functions that we have within the platform must be tested in simulated mode.

We will be able to test several platforms and determine which one is best suited to our trading (More Info: What is the Best Trading Platform?). Traders, although experienced, first test the platforms in simulator before working with them.

Analyze markets:

If we work with a simulator offered by an online broker (a demo account), as a general rule we will have the possibility of carrying out practices of analysis of the different financial markets that we have available.

You will be able to develop market hypotheses and check if you were right. In other words, we will learn how to work with charts and how to use the different tools and indicators of technical analysis. (More info: Are indicators really useful in trading?).

Test the broker:

With the simulation mode we will also be able to see how the broker works, the services he provides, his reliability, his internal functioning, the commissions he applies,...

Even if we have already passed our training stage and are operating with a real account, if you decide to hire the services of a new broker, we can establish a prior control of their conditions and services with a simulator, without having to deposit our money before checking if it fits what we are looking for. (More Info: Which are the best online brokers?).

Learn how to make trading decisions:

If we do the job correctly and operate with the stock market simulator as if it were a real account, it will help us to better understand what decisions we must make in the face of complicated situations in the markets.

What would a truly competent trader do in this scenario? We will be able to put that question into practice when trading with an exchange simulator.

In addition to the above, which time frame is best suited to us, which trading style do we really feel comfortable with, which financial markets are most interesting to us? These are decisions a trader must make before trading a live account.

Try new trading strategies:

This simulator function is used by all types of traders including professional traders. When designing a new trading strategy, it is highly recommended that it be validated by the relevant tests in the trading simulator.

In this case, it is not just a matter of learning and testing ourselves as traders. It's a matter of trying out different strategies and alternative trading modes to the ones we're using.

Get trading statistics:

This applies both to specific strategies and to ourselves as traders. Being able to trade in a simulator gives us the opportunity to obtain a series of statistical data (such as percentage of winning trades, maximum loss, etc.) to help us improve and better understand our performance before moving to a live account.

This will allow us to carry out a more refined operation, adjusted to our needs and will better define our trading style.


It can be deduced, with all that has been explained in this article, that a stock market simulator is an essential tool for any trader, especially when he is a beginner but also throughout his career.

Even if there are differences and with respect to a real account, the trader can make the most of a stock market simulator if he carries out the trades accordingly, works on bad habits and operates with discipline.

In short, in order to be really profitable, you have to treat trading in the stock market simulator as if it were a real account and it were our money that is at stake.

Gregory Weiss
Gregory Weiss July 25, 2020