“Tell me and I forget. Teach me and I remember. Involve me and I learn.”
Want to learn how to invest in the stock market without losing money? Stock market games are a great way to practice whether you are a beginning investor or investing for awhile. These games are an example of learning by doing, also known as experiential learning and practical learning tools.
I am passionate about teaching people, especially young students how to invest in the stock market. Playing the stock market game can speed your learning and allow you to make painless mistakes. Investing is one of the best ways of creating and building wealth for your future. It can be your ticket to financial security and can be mastered as a lifelong skill.
Investing can be daunting for experienced investors, let alone for those who are just starting. On the other hand, virtual games that can ease your entry are free, fun, readily available, and user-friendly. They offer participants a faster learning curve to build investment skills and better financial habits.
A Generational Opportunity?
During the pandemic, we have seen a significant rise in stock volumes in 2020, with year-to-year volumes up nearly 100% in early 2021. Much of the higher volume seems to be coming from retail trading. As a result of rising interest, young people have been opening up a record number of accounts at Robinhood and Webull. Webull has a virtual trading platform for those not ready to invest real money yet.
This trend may signify a generational opportunity of young individual investors participating in the market as a path to building wealth. These new investors can build their future wealth by first learning how to handle risks, market volatility, ensure portfolio diversification, and financial concepts. Engaging in stock market games can help you build your confidence, skills, and knowledge.
Why Investing Early Matters?
- Leverage the power of compound interest (interest on interest) earned on your initial investment for significant returns in your retirement and investment accounts.
- Take on more significant risks when you are young and able to absorb the bumps and bruises of downturns.
- Motivate yourself to save more, spend less so that you can grow wealth.
Investing is a viable means to accumulate wealth and enjoy financial comforts. The earlier you start to save money for investing purposes, the better. Parents should begin talking to their kids about money when feasible, exposing them to investing basics and developing good financial habits.
Simulated Games Are Suitable For Virtually Everyone
Young people can get a big jump on investing by playing virtual stock market games with parents, friends, investment clubs, classes, or even on their own. Stock market simulated games are an excellent way to practice and gain experience in investing before you commit your own money.
I have used these virtual games for years to teach my college students about stock investing, critical financial concepts, and terminology. The games are fun to learn virtual trading and investment strategies in a realistic setting without risking a dime.
Generation Zers come from an environment enriched with simulations and games. They are perfect candidates to learn how to invest from virtual stock market games as interactive tools.
As digital natives, they are on always-connected with cloud-based digital technology from birth. They often prefer video and simulated games to traditional modes of learning. However, virtual games are user-friendly and can appeal to anyone, even digital immigrants like me. As a result, I use Market Watch Virtual Stock Exchange by Dow Jones for my college students and my kids at home.
How The Games Work
At the start, I customize settings. Each player gets $1,000,000 to invest in many US stocks, foreign stocks, mutual funds, and Exchange Traded Funds or ETFs. Some games allow the trading of foreign currencies, cryptocurrencies, options, and other securities.
My college students build their $1 million investment portfolio to buy at least $800,000 of stocks and keep $200,000 or less in cash. They can actively trade daily on the game or purchase and hold on to stocks in their portfolio as a long-term strategy.
Investing Versus Trading
Most games allow for margin trading, short selling, and options trading for more advanced players. From my perspective, I favor the games as a lesson in investments rather than for trading purposes. Returns tend to be better for the long term in retirement and investment accounts.
As much as I applaud young investors in the market, I grew concerned about the market frenzy that pushed GameStop shares to ridiculous levels. So I wrote this letter to young investors concerning the dangers of short-selling and margin trading you can read about here.
They use the stock market game for a wealth of resources about the markets and the economy, but they research all publicly available information.
Why Use A Simulated Game For Investing?
1. Active Learning Of Investing Basics
Games are a fun and educational way to learn to invest, a pivotal way to accumulate wealth. There is a greater level of engagement and motivation when you are learning a skill through simulation. Players can quickly fill and modify their portfolios by buying and selling stocks with ease.
Many people avoid investing, believing it is too complicated, and fear losing money. Those are valid concerns. That’s a prime reason why getting your feet wet with the game allows you to get more comfortable. Trying out trading and investment strategies is less intimidating.
There are many articles and videos on the sites to understand differences in risk/reward trade-offs better and measure your tolerance to make more risky purchases. Feeling gains and losses are real enough and allow you to pivot in different ways.
2. Diversifying Portfolios Reduces Risk And Growth
When creating a virtual basket of stocks, players should diversify their portfolios in different industries. For example, in reality, you would not want to hold all fast-growing technology stocks or all safer utility stocks, but rather a blend of different kinds of companies. When building a portfolio, you may favor a mix of growth stocks, value stocks, stocks with above-average dividend yields in different industries. Virtual investors can become attuned to market information that may affect one stock or particular group more than others.
Avoid Concentration Risk
My son Tyler was playing a simulated game in a stock market club and put all of his money in one stock–Amazon–when it was rising significantly. He was so excited that he was doing the best in the club until one day Amazon reported quarterly results that missed analyst expectations.
Apparently, the company announced a rise in capital spending for their data business. Amazon shares crashed and became “dead money,” a term investors use to mean that the stock’s performance will drag for a while.
For Tyler, it was a learning experience about why diversification was important in your portfolio. Concentrating all your money in one stock is a dangerous strategy. It is not good to put all your eggs in one basket.
3. Macro Factors Investors Need To Know
Beginning investors need to understand external or macroeconomic factors that may impact the market. Players should be reading relevant financial news to learn about important events that can sway the market significantly. Learn what makes the market tick. How does the market react when the Federal Reserve takes action on interest rates, economic changes, inflation, and international events (eg. China)? Just understanding what is relevant to your stocks is a big lesson.
4. How To Deal With Market Volatility
From the relative safety of playing a virtual stock market game, players can better understand that market volatility happens regularly. The most experienced investors are often surprised about dramatic changes usually caused by headline risk or recession worries.
By virtual investing, you become more aware of rhythms in the market and prepare for a volatile market. As such, you can explore strategies to deal with turbulence without the loss of real money. Ask yourself: are you better off trading actively in a weak market or sticking to a buy-hold plan? Games allow you to experiment with cash without the fear of losing it.
Market Volatility During The Pandemic
Many investors quickly baled when the pandemic’s effects hurt our economy, causing a dramatic market downturn in March 2020. However, the market proved its resilience by resurging and reaching record levels later in the year. Those investors who sold their holdings learned a lesson about riding out storms.
5. Competition With Your Peers Is (Almost) Realistic
Never let a chance to compete with your peers go to waste! Students love to compare their rankings. Most games rank players daily and allow you to see each other’s stock purchases, performance, and ranking.
My students tell me that they check their rankings daily, if not more often. If they lose a top-ranking, they often get upset. I need to remind them that it is virtual money. We discuss strategies in class. They can research what stock (or stocks) pulled their performance down and decide if they should buy more with available virtual cash to reduce their cost basis.
You can form teams within the game structure simulating portfolio managers who consult with each other. Young people can engage in collaboration, collegiality, and problem-solving within their group. These are excellent soft skills to build for your careers that employers love to see.
6. Building Confidence And Self-Esteem
The reality of picking stocks and learning some investing basics is a big confidence booster. Students playing a stock market game say:
- It was fun learning how to invest.
- They plan to open an investment account (eg. Robinhood or Webull).
- Virtual investing has helped them to become more confident in their abilities.
Investors tend to value savings to deploy for investment purposes. If so, and it provides you with an incentive to save more, that is a worthwhile accomplishment.
Popular Simulated Stock Market Games
There are at least 5 games to choose from that allow for competition, awards, alternative securities, and provide resources for players. Here are some of my favorites.
1. Marketwatch Virtual Stock Exchange
MarketWatch is a top financial and news website owned by Dow Jones. The Virtual Stock Exchange game can be customized by an administrator such as a parent or teacher providing $100,000 or $1,000,000 in private or public mode. The game provides rankings for each player. Administrators like me can customize trading parameters. Participants can trade stocks, global stocks, mutual funds, and ETFs.
Players can find and trade stocks in real-time and build their own portfolios They can create, watchlists and have access to articles, videos, and charts. There are advanced trading options with specific orders such as at the limit price or less or stop order, meaning an order to buy or sell a stock once the price reaches a specified price. There are nearly 40,000 games currently in play.
Integrating The Game
For the past 10 years, I have administered several games a year with my finance students, integrating the game with my finance curriculum. As a result, I have an easier time teaching how the Fed influences the financial markets. They update excel spreadsheets for prices, yields, and valuation, learning relevant financial concepts.
In recent years, the game has become more user-friendly with more resources. Student feedback has been overwhelmingly positive. They have fun watching their rankings relative to their peers, finding out why their stock performance has outperformed or underperformed. They find the game quite realistic and are eager to set up their own investment accounts.
2. The Stock Market Game
Although geared for teachers and students, anyone can participate in The Stock Market Game individually or as a team, including a family. Participants can trade their own $100,000 investment portfolio. The portfolios can be a mix of stocks, bonds, mutual funds, and cash. Players can participate in a competition or in a non-ranked session. This game is created by the educational nonprofit organization, the Securities Industry, and Financial Markets Association, or SIFMA.
SIFMA touts a 2009 FINRA study of The Stock Market Game providing positive results on students in grades 4-10 who played the game, scoring higher on investor knowledge tests.
3. Wall Street Survivor
Partnering with AOL, Seeking Alpha, and The Motley Fool, Wall Street Survivor is among the most popular simulated games available. You can start with anywhere from $10,000 to $10 million in virtual money. There is the option to join a public or private league or create your own league. This site is resource-rich and provides courses, videos, newsletters, starter guides, and articles. I particularly like that they have resources to analyze a business and its financial statements. As a former analyst, the resources make my heart sing.
You can earn badges and vie for real cash prizes of $2,000 monthly. You practice trading and take quizzes to reinforce your knowledge. According to their site, they have over 1 million users. Wall Street Survivor has a cryptocurrency game as well.
4. How The Market Works
This site has been around since 2004 and is good for classes, groups, and individuals. While tailored toward beginning investors, there are advanced resources that participants can use including Wall Street Analyst Ratings, financial news, company financial statements, and technical charts. You can buy global stocks, mutual funds, ETFs, options, and even commodity futures. Customization of games, competitions, and flexibility in cash balances are all available.
5. Investopedia Stock Simulator
The respected financial site Investopedia has its own comprehensive stock simulator. You can start with $100,000 in virtual cash. Participants can join an existing game or create a customized game of their own, trading stocks, options, margin trading, and adjustable commission rates. Players are ranked, can research their investments, and earn rewards for completing various activities. You can connect with over 700,000 traders and investors globally.
If you are new to investing, stock market games are a great way to gain experience in a simulated setting without the risk of losing your own money. These free games are fun on sites rich in resources to learn at your own pace or as part of a team.
You can create portfolios, learn concepts and build confidence along the way. The games have enhanced the investing capabilities of my college students, many of whom are now active investors on their own. It is my passion to teach students how to invest.
Have you ever participated in a simulated stock market game? If so, what was your experience? I encourage you to try one of the games with your friends or family as a first step to investing for real. Thank you for reading! Please subscribe to The Cents of Money and join our growing community!
With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.