‘Practice makes perfect’ rings true when you’re trading, especially for those who are a novice. While it may be possible to jump right into the options market with no experience, it is less risky if you are confident in what you’re doing and confident in your strategy. And an options trading simulator can help you build that confidence. In this blog, we will explain in detail everything you need to know about the special tool as well as introduce to you the best ones favored by professional options traders.
What is an Options Trading Simulator?
An options trading simulator is a platform designed as a learning tool for traders to see what it would be like to buy options on stocks in real-world conditions. It helps you gain more experience using varying order types and develop your trading strategy without risking your real money.
Options trading is no piece of cake. Ask any trader and they might tell you it is among the hardest to earn consistent profits. It can be difficult to trade options for stocks on any American stock exchange, like the New York Stock Exchange or the NASDAQ. Therefore, trading tools like stock options trading simulators can be precious.
Advantages of an Options Trading Simulator
- By practicing with pretend money, there’s no chance of you losing your hard-earned money.
- Everyone can use it, from seasoned to novice traders.
- You can learn how different options trading is from stock trading without even going for actual trading.
- You can avoid certain pitfalls during the actual trading with the simulator.
- You can try on different strategies without worrying about losing your trading capital.
- You can know the effects of your trading bets before putting your money in a real one.
- You can get a better understanding of how the actual transaction happens in options trading with virtual commission and fees.
- There are multiple free options trading simulators on the market. The features might be limited but they are good enough to start practicing options trading.
Disadvantages of an Options Trading Simulator
- In real-time conditions, there are not always enough buyers and sellers in the market, which means some orders are not filled trading live.
- Your overconfidence can be an obstacle if you don’t keep in mind the differences between options trading simulators and live trading.
- You might get complacent if you find consistent success using an options trading simulator.
This important tool should be used only for the purpose of helping you get experience using options chains and various option strategies. It should never replace advice from a financial advisor or broker.
Why You Should Use an Options Trading Simulator
Many traders jump right into trading without much preparation. You can be one of those luckiest ones that can still find success. But why risk your hard-earned money if you can get a free options trading simulator on the market? If you are not completely convinced to use one, check out these three reasons:
Practical Experience for Novice Traders
With an options trading simulator, you can build good trading habits. As the simulator provides you with consistent practice and helps put your options trading strategies in place, you will learn the mechanics of placing trades to avoid mistakes when real money is on the line.
Build Psychological Discipline
With real practice, you will learn the importance of sticking to your plan and avoiding over-trading or impulse trading.
Access to Education
Options trading simulators often come with resources to educate option traders to help you lower your risk and increase your profit.
11 Best Options Trading Simulators
A quick search for options trading simulators can lead you to dozens of results on Google. It can be a headache, especially if you are a new trader. If you aren’t sure which one to choose, consider the 11 best simulators available on the market below.
- Power E-Trade Paper Trading
- Wall Street Survivor
- thinkorswim (aka paperMoney)
- ETNA Trading Simulator
- Bull Bear Traders
- Warrior Trading
- MarketWatch Virtual Stock Exchange
An options trading simulator can be valuable for any trader. For beginners, it helps you learn about basic investment concepts, the impact of market volatility, how to read stock tables, how to test trading strategies, and much more. For seasoned traders, it helps them test virtually any trading strategy without risk. An options trading simulator is obviously valuable for options trading. However, some platforms listed above can also be used for stock trading or day trading. For more knowledge about these popular financial markets, check out our courses at Library of Trader.