Virtual Trading

Details

Category: Trading Type

Virtual stock trading is a simulated trading process in which investors can 'practice' investing without committing real money. This is done by the manipulation of imaginary money and investment positions that behave in a manner similar to the real markets. Before the widespread use of online trading for the general public, virtual stock trading was considered too difficult by many new investors. Now that computers do most of the calculations, new investors can practice making fortunes time and time again before actually committing financially. Investors also use virtual stock trading to test new and different investment strategies.

A virtual economy (or sometimes synthetic economy) is an emergent economy existing in a virtual persistent world, usually exchanging virtual goods in the context of an Internet game. People enter these virtual economies for recreation and entertainment rather than necessity, which means that virtual economies lack the aspects of a real economy that are not considered to be "fun" (for instance, players in a virtual economy often do not need to buy food in order to survive, and usually do not have any biological needs at all). However, some people do interact with virtual economies for "real" economic benefit.

Paper trading (sometimes also called "virtual stock trading") is a simulated trading process in which would-be investors can 'practice' investing without committing real money. This is done by the manipulation of imaginary money and investment positions that behave in a manner similar to the real markets. Before the widespread use of online trading for the general public, paper trading was considered too difficult by many new investors. Now that computers do most of the calculations, new investors can practice making fortunes time and time again before actually committing financially. Investors also use paper trading to test new and different investment strategies. Stock market games are often used for educational purposes.

For example, investors can create several different positions simultaneously to compare the performance and payoff characteristics between multiple strategies. A textbook may state that writing a covered call is synthetically the same as writing a naked put, but in practice there are subtle differences. With a paper trading account, an investor can set up a bull credit spread and how the payoff for each position changes as the market moves.