Learn to trade without the bruises
Stock market games help beginners in several ways. First and foremost, a beginning investor can't go broke paper trading. By using one or more of the available online stock market simulations, beginning investors can test the waters without losing any of their investment capital. Trading with real money can be an expensive way to get an education.
Another benefit of stock market games is that they increase a beginning investor's comfort level with the market. With a realistic trading platform, much like the kind an investor will encounter at some of the best online brokers like eTrade, Charles Schwab, or Fidelity, investors can test drive the different types of purchase and sale orders. Beginning investors can learn the difference between market orders and limit orders, stop loss orders, day limit orders and orders good until canceled. They can also learn when each of the above orders is most appropriate.
The importance of the fantasy trading community can't be overstated, either. By joining online forums filled with other beginning investors, a paper trader learns that he is not the only one learning and can even learn new trading strategies from the other investors. Many stock simulations allow beginning investors to join leagues or teams, providing them with a sense of competition and camaraderie while they learn. The collaboration with other investors can shave weeks or months off a new investor's learning curve.
Some stock simulators, Wall Street Survivor for example, even offer cash prizes for the highest monthly returns on a fantasy portfolio. It is hard to beat a cold, hard cash prize when an investor doesn't even have any real money on the line.
Paper trading keeps investors honest and builds good trading habits. The instant positive or negative feedback provides valuable lessons without costing any money. New investors have a habit of exaggerating their imaginary returns, but stock simulators keep them honest. There is no fudging the numbers and assuming you bought at the low and sold at the high.
Practicing before real investing also builds a foundation of trading discipline, which is crucial to success in the stock market. Any seasoned investor will admit that emotions are the worst thing to introduce into a stock investment. Getting “married" to a stock when it is dropping and refusing to take a small loss often leads to much greater losses. Likewise, refusing to sell a stock after a nice profit is inviting disaster. Market mavens even have an axiom to describe the deleterious effects of greed in the market: the pigs get fat, and the hogs get slaughtered. Learning these lessons a few times on paper will teach most investors to stick to their trading strategy and not get emotional about stock.
In conclusion, all beginning investors should avail themselves of the stock market simulators found online. Some are very good, and they are outlined in the article, “Best Stock Market Games for Beginners". Stick with it until you are consistently successful, and then begin trading with real money. The temptation will be there to continue paper trading until you consider yourself “perfect", but this is a mistake. Paralysis by analysis can be even more expensive than losses in the market. At some point, you have to roll up your sleeves and get dirty!