One of the oldest financial adages is that it “takes money to make money.” Aside from selling your own labor, that’s true, and the stock market is arguably the most lucrative and time-tested arena for everyday investors to put their money to work.
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Of course, the most surefire way to take advantage of Wall Street gains is to buy and hold passive, low-cost stock market mutual funds and exchange-traded funds, or ETFs, that track a prominent index like the S&P 500. While this approach works best for most people, there are two downsides: First, you can never outperform the index you’re tracking. Second, it’s a bit boring.
So let’s say you’ve decided to take the plunge into picking individual stocks. If you’ve never done it before, it can be a bit daunting to jump right in and risk your hard-earned money. This is where “paper trading” comes in handy.
What Is Paper Trading?
Instead of buying stocks with real money, paper trading simply means that you game out your investing strategy with fake money and track your results. This allows you to test the success of your ideas before ultimately putting real capital behind your convictions.
While paper trading is arguably most useful for short-term day traders looking to test a rules-based strategy, it can also benefit the cautious would-be buy-and-hold investor.
Here are five of the best paper trading sites and stock market simulators:
— MarketWatch
— Investopedia
— Finviz
— Thinkorswim
— eToro
MarketWatch
Dubbed the “virtual stock exchange,” this paper trading platform is hosted on financial news site MarketWatch. Heavily used by individual investors, beginners and students competing with one another in a classroom setting, there were more than 40,000 active “games” at the time of this writing.
The virtual stock exchange allows users to create or join a game in which they can compete against others to produce the best returns with their imaginary money. Looking to paper trade in private? No problem — just create a private game and track your own hypothetical trades without fear of judgment.
MarketWatch offers the choice to invest in more than 5,000 public companies across the Nasdaq, NYSE and NYSE American exchanges, as well as many over-the-counter pink sheet picks. You can choose to start with any sum of fake money you like, up to a maximum of $10 million.
Other features include the ability to set a commission fee for each trade, short selling, margin trading (and a customizable interest rate charged for margin trading), along with limit, stop-loss and partial shares, or fractional, trading.
This paper trading site should have most of what the average investor would want or need, although there are some minor drawbacks. Options trading isn’t allowed, and the end date for the game you devise can’t be more than a year in the future. And for those looking to pull one over on their fellow competitors, there appears to be a minor glitch in which reverse stock splits can erroneously multiply the value of your portfolio overnight.
Investopedia
Another financial news and analysis site, Investopedia also offers a free stock market simulator in the same vein as MarketWatch’s. On top of the ability to trade stocks, the site offers several additional features that MarketWatch doesn’t.
In addition to stocks and ETFs, users can freely paper trade stock options, which adds another layer of complexity for anyone looking to explore what selling covered calls or testing options strategies — like protective collars or iron butterflies — might look like in real life.
A nice perk of Investopedia’s interface is the “learn” tab of the simulator, where you can learn all about stocks themselves, trading basics, how to research stocks, portfolio management and options basics and strategies.
Aside from the options capability and easy-to-digest educational materials, Investopedia also differentiates itself through its cryptocurrency simulator. Like the real crypto market, it’s open for paper trading 24/7. The crypto simulator is separate from Investopedia’s main stock and options simulator and is free of charge once you’ve created a login.
Finviz
Financial visualization site Finviz, which also boasts news links and a daily view of the market’s top performers and most actively traded names, also offers a way for folks to seamlessly track the performance of their picks without putting real money up.
Like previous names on this list, Finviz’s portfolio-tracking capabilities don’t cost a penny as long as you create a free account. While not marketed as a stock simulator or paper trading tool, Finviz’s “portfolio” capability allows you to create a virtual portfolio that can contain as many as 50 different symbols in customized allocations. You can also build dozens of different hypothetical portfolios for free, allowing users to create portfolios based on various themes.
One neat feature is the ability to use Finviz’s stock screener to produce a list of stocks fitting certain criteria, then automatically create a portfolio of those stocks and track its performance over time.
While users can play with how selling a stock short would play out, Finviz doesn’t allow users to see what the true experience would be like, which involves paying margin interest and the potential for receiving a dreaded margin call if your bearish bet moves against you.
There are some quirks and limitations within Finviz’s paper trading features — stock splits and spinoffs are incorrectly accounted for, for example — but for a back-of-the-napkin look at how your trading strategies might play out, the site does just fine.
[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]
Thinkorswim
Perhaps you want to take it a step further beyond merely creating watchlists or fake portfolios. Maybe you also want to simultaneously familiarize yourself with the layout and features of an online brokerage, and emulate exactly what trading securities with real money would look and feel like.
Thinkorswim is a highly acclaimed online trading software originally offered by TD Ameritrade. If you’re an existing customer, you should already have access to the paper trading feature, appropriately dubbed paperMoney. But even if you don’t have an account, you can sign up for free access to this feature alone. In doing so, you’ll get a firsthand look at some of the charting, screening and other tools that make thinkorswim one of the most highly regarded trading platforms for intermediate and sophisticated investors.
Here, you’ll get access to paper trading stocks, ETFs, mutual funds and options — all within the heralded thinkorswim interface itself, which offers tons of education, charting and analysis tools.
There’s a touch of a learning curve with the platform for newer or less-advanced traders, but for anyone looking to seriously paper trade and get a sense of how it would look within the confines of a real online brokerage, paperMoney by thinkorswim is an excellent option.
As part of Charles Schwab Corp.’s (ticker: SCHW) 2020 acquisition of TD Ameritrade, much of thinkorswim’s platform, including its desktop, web and mobile platforms, has migrated to Schwab. Some features, like futures and foreign exchange trading, have still not yet migrated to Schwab’s thinkorswim software as of early 2024, although the company says those features are expected soon.
eToro
Online broker eToro also does a fine job of offering a paper trading experience to users. While its simulator is free, users will have to divulge a bit of personal information to paper trade stocks, although no such requirement is in place to paper trade cryptocurrencies. eToro cites regulatory constraints as the reason for this discrepancy.
With a much simpler and more intuitive interface than thinkorswim, eToro is a nice option for a beginner investor looking to experiment with the feel of different online brokerages and trading strategies while not risking a sensory overload from a collage of complex tools.
Those with an interest in crypto might favor eToro, and its CopyTrader feature lets users mimic the trades of certain traders on the platform, whose past performance and risk profile you can examine as well. As with other crypto-focused simulated trading tools, eToro allows paper trading of digital assets at all hours of the day and night — not just when Wall Street’s open for business.
[SEE: 9 Highest Dividend-Paying Stocks in the S&P 500]
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5 of the Best Paper Trading Sites originally appeared on usnews.com
Update 02/09/24: This story was published at an earlier date and has been updated with new information.
