A stock market simulator allows you to try your hand at investing without putting forward any real money. Trading simulation, also called paper trading, is a way to learn the nuances of investing at a do-it-yourself brokerage with zero risk of losing any cash.
Trading simulators let you buy and sell stocks of real companies that are on an actual exchange at their real time prices. New investors may find a trading simulator a good way to gain confidence in making trades.
They range in complexity, ease of use, and resources. The bare-bones ones simply allow you to create and track a portfolio of stocks, while others also let you play with options, commodities, and currencies. Some offer learning resources like investing videos and instructional articles.
Why should I use a stock market simulator?
Stock market simulators can be excellent tools for those starting out in the investing world or those interested in learning about complex investments. Trading simulators allow new investors to practice stock trading without putting their financial wellbeing at risk. You can track how your portfolio does over time and slowly become more confident in picking stocks.
Simulators are most helpful for those interested in picking and choosing stocks themselves. If you prefer a more hands-off approach or find investing intimidating, robo-advising may be a better option for you. With robo-advising you simply have to select your risk tolerance and deposit funds—everything else, like selecting securities and rebalancing, is taken care of for you by an algorithm.
Simulators, while useful, run the risk of encouraging risky investing behaviors. Buying and selling frequently, checking performance daily, and trying to beat the market are actions that are more akin to gambling than investing. The best strategy is a long-term “buy-and-hold” approach, not a short-term speculative one. Research shows that passive traders profit more in the end than active traders.
Nevertheless, if you are interested in choosing the specific securities in your portfolio then it’s a smart idea to set up a demo trading account and judge your performance to see if it’s the right strategy for you. The real benefit of using a practice trading account is in the technical—it can teach you to double-check your order before submitting it and how to input the right number of shares, so you only make mistakes while using fake money.
Arm yourself with knowledge for stock trading
Before you head onto the internet to try a stock market simulator for Canada, understand how the market works and how to trade stocks. Helpful resources include Investopedia’s Beginner’s Guide to Investing in Stocks, the Yahoo! Finance website, The Motley Fool, and the Money Tree podcast.
One other website that stands out is US-based Warrior Trading, which offers a wealth of information that will help anyone learn about trading.
Best stock market simulators for paper trading in Canada
While Americans have a much broader selection of simulators to choose from than Canadians, there are a limited number of options that let users choose a portfolio based on the Toronto Stock Exchange (TSX). These are the best:
TMX is the company that operates the various stock exchanges in Canada, such as the TSX, so it makes sense that they offer one of the best practice accounts. While it calls itself an options trader, the service also allows you to buy and sell any stocks available on any TMX-owned exchange. It provides market, limit, and stop orders.
The simulator is easy and free to use with an extremely clean interface. You get to decide your starting amount of seed money, and you’re charged a commission (although some brokerages in Canada now offer free commission). The quotes have a 15-minute delay instead of working in real-time, but that doesn’t really matter in a simulator position (and only matters in real life if you’re planning to trade frequently). This simulator is appropriate for anyone starting an investment journey or who wants to learn more complex techniques like options trading.
How the Market Works is a free American-based stock market simulator—called a “game” by the company—that offers the option of choosing to trade Canadian stocks. Once you register, simply click “Start Trading” and then choose the “Toronto” tab to trade stocks on the TSX. Like most good simulators you can only trade during actual TSX trading hours because the service is pulling in real-time price quotes.
You can input the full range of trading options like market, limit, stop, and trailing, as well as a “good until” date. The stock simulator offers the ability to graph your transaction history. The real value in this platform is the range of education products it offers. The site hosts contests, gives trading ideas, and provides aneducational center with glossary terms, personal finance and economics lessons, and video tutorials. It offers an entire platform for personal finance teachers that include lesson plans.
The Virtual Stock Exchange allows you to trade stocks, commodities, and currencies from more than 30 countries, including Canada. You simply select the “CDN Practice Portfolio” option when you register. It starts you off with $1 million in seed money with an extra $1 million in margin power.
When you put in a ticker to trade, it gives you not only the real-time price quote but also a company summary and a map of its headquarters. It also provides daily, monthly, and annual price graphs. It doesn’t charge you a commission to trade, which may or may not be realistic depending on what brokerage you use.
While not a traditional simulated trading platform, VectorVest can be a useful tool in your investing journey. VectorVest is a stock analysis and portfolio management system that analyzes, ranks, and graphs more than 16,000 global stocks every day (around 3,500 on the TSX) and gives buy, sell, or hold ratings. By getting a low-cost trial for a month, checking out its recommendations, and then comparing to actual stock performance, you can “simulate” your portfolio performance. You can then move to the tiered pricing structure, which starts at $69USD/month and invest with real cash.
VectorVest claims to give you “unbiased and independent” guidance. It works by determining if a stock is under- or over-valued by factoring in discounted cash flows, earnings, earnings growth, profitability, inflation, interest rates, and its long-term price appreciation potential. The algorithm gives each stock a rating in a range from 0.0 to 2.0 to help you decide when to buy or sell. This simulator won’t help you practice the technical details of inputting an order, but it will help you decide if your stock picks are on point.
Montreal-based Wall Street Survivor simulated trading platform provides a robust educational component with its free real-time simulator; users have access to courses and videos, and receive a virtual $100,000 to start simulated investing. The library of courses and videos includes intro info for beginners as well as a wide range of topics about trading strategies and investment approaches, such as short-selling, how to invest like Warren Buffet, and socially responsible investing. Wall Street Survivor is gaining popularity because it uses gamification to teach and reinforce its lessons.
