Stock market simulator

Last updated

A stock market simulator is computer software that reproduces behavior and features of a stock market, so that a user may practice trading stocks without financial risk. Paper trading, sometimes also called "virtual stock trading", is a simulated trading process in which would-be investors can practice investing without committing money. [1]

Contents

This is accomplished by the manipulation of simulated money and investment positions that behave in a manner similar to the real markets. [1] 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 a bull debit spread simultaneously and watch how the payoff for each position changes as the market moves.

Other advanced strategies include leverage, short-selling, forex and derivatives trading. Successful execution and profit generation from these strategies usually require high levels of technical knowledge. Investors can test these strategies with paper trading to avoid taking on excessive risk due to inexperience.

Various companies and online trading simulation tools offer paper trading services, some free, others with charges, that allow investors to try out various strategies (some stock brokerage firms allow 14-day 'demo accounts'), or paper trading can be carried out simply by noting down fees and recording the value of investments over time.

The imaginary money of paper trading is sometimes also called "paper money," "virtual money," and "Monopoly money."

Types

Stock market simulators can be broken down into two major categories - financial market simulators, and fantasy simulators.

Financial simulators

Financial market simulators allow users to generate a portfolio based on real stock entries and help them train with virtual currency. Most of the currently active financial simulators use a delayed data feed of between 15 and 20 minutes to ensure that users cannot use their data to trade actively on a competing system. Some simulators can produce random data to mimic price activity. The purpose behind such a system is to let a person practice with fantasy funds in a real-world context so they can determine whether or not they would gain money investing by themselves.

Fantasy simulators

Fantasy simulators trade shares or derivatives of real world items or objects that normally would not be listed on a commodities list or market exchange, such as movies, books or television shows. Some simulators focus on sports and have been linked to active betting and wager based systems.

Technology and implementation

Most of the online stock simulators run on either C, C#, Java, JavaScript, ASP or PHP with a MySQL or PostgreSQL database. Some of them are open source, and others are proprietary with the code being sold as valuable prediction market software. Such is the example with the HSX Virtual Specialist. This technology has been sold to major film studios such as MGM and Lion's Gate Films, as well as to the Popular Science team for use in their PPX system. [2]

Stock Market simulator engines can also be customized for other functions than just basic stock information tracking. The HSX engine has been modified to track popular science trends and also to track YouTube videos. Other applications that can be implemented with this software include popularity tracking and ranking from a set scale rather than an actual numerical value.

Stock market games

Stock market games are speculative games that allows players to trade stocks, futures, or currency in a virtual or simulated market environment.

Stock market games exist in several forms but the basic underlying concept is that these games allow players to gain experience or just entertainment by trading stocks in a virtual world where there is no real risk. Some stock market games do not involve real money in any way. Players compete with each other to see who can predict the direction the stock markets will go next. Many stock market games are based on real life stocks from the Nasdaq, NYSE, AMEX or other major market indexes.

Stock market games are often used for educational purposes to teach potential stock traders and future stock brokers how to trade stocks. Stock market games can also be used for entertainment purposes and to engage in fantasy trading competitions.

Some stock market games are not based on financial markets at all. These virtual stock markets are often based on things like sports or entertainment 'stocks'. Players are asked to invest in a particular sports team for example. If the team is doing well, the stock goes up and if the team is playing badly the stock value for that team falls. Stock market games are often built into many other prediction games.

See also

Related Research Articles

<span class="mw-page-title-main">Capital market</span> Finance

A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Financial regulators like Securities and Exchange Board of India (SEBI), Bank of England (BoE) and the U.S. Securities and Exchange Commission (SEC) oversee capital markets to protect investors against fraud, among other duties.

<span class="mw-page-title-main">Financial market</span> Generic term for all markets in which trading takes place with capital

A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets as commodities.

<span class="mw-page-title-main">Stock market</span> Place where stocks are traded

A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange as well as stock that is only traded privately, such as shares of private companies that are sold to investors through equity crowdfunding platforms. Investments are usually made with an investment strategy in mind.

Investment is traditionally defined as the "commitment of resources to achieve later benefits". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broader viewpoint, an investment can be defined as "to tailor the pattern of expenditure and receipt of resources to optimise the desirable patterns of these flows". When expenditures and receipts are defined in terms of money, then the net monetary receipt in a time period is termed cash flow, while money received in a series of several time periods is termed cash flow stream.

<span class="mw-page-title-main">Day trading</span> Buying and selling financial instruments within the same trading day

Day trading is a form of speculation in securities in which a trader buys and sells a financial instrument within the same trading day, so that all positions are closed before the market closes for the trading day to avoid unmanageable risks and negative price gaps between one day's close and the next day's price at the open. Traders who trade in this capacity are generally classified as speculators. Day trading contrasts with the long-term trades underlying buy-and-hold and value investing strategies. Day trading may require fast trade execution, sometimes as fast as milli-seconds in scalping, therefore direct-access day trading software is often needed.

The Hollywood Stock Exchange, or HSX, is a web-based, multiplayer game in which players use simulated money to buy and sell "shares" of actors, directors, upcoming films, and film-related options. The game uses Virtual Specialist technology invented by HSX co-founders and creators Max Keiser and Michael R. Burns, who were awarded a U.S. patent no. 5950176 in 1999 for the invention. Claims of this patent cover trading applications for trading virtual securities using virtual currencies over a network.

Contrarian investing is an investment strategy that is characterized by purchasing and selling in contrast to the prevailing sentiment of the time.

Market timing is the strategy of making buying or selling decisions of financial assets by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions resulting from technical or fundamental analysis. This is an investment strategy based on the outlook for an aggregate market rather than for a particular financial asset.

<span class="mw-page-title-main">Securities market</span> Component of the wider financial market

Security market is a component of the wider financial market where securities can be bought and sold between subjects of the economy, on the basis of demand and supply. Security markets encompasses stock markets, bond markets and derivatives markets where prices can be determined and participants both professional and non professional can meet.

Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institutions, such as insurance companies, pension funds, corporations, charities, educational establishments, or private investors, either directly via investment contracts/mandates or via collective investment schemes like mutual funds, exchange-traded funds, or Real estate investment trusts.

In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Individuals have different profit objectives, and their individual skills make different tactics and strategies appropriate. Some choices involve a tradeoff between risk and return. Most investors fall somewhere in between, accepting some risk for the expectation of higher returns. Investors frequently pick investments to hedge themselves against inflation. During periods of high inflation investments such as shares tend to perform less well in real terms.

<span class="mw-page-title-main">Asset allocation</span> Investment strategy

Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. The focus is on the characteristics of the overall portfolio. Such a strategy contrasts with an approach that focuses on individual assets.

<span class="mw-page-title-main">Stock trader</span> Person or company involved in trading equity securities

A stock trader or equity trader or share trader, also called a stock investor, is a person or company involved in trading equity securities and attempting to profit from the purchase and sale of those securities. Stock traders may be an investor, agent, hedger, arbitrageur, speculator, or stockbroker. Such equity trading in large publicly traded companies may be through a stock exchange. Stock shares in smaller public companies may be bought and sold in over-the-counter (OTC) markets or in some instances in equity crowdfunding platforms.

In finance, a trading strategy is a fixed plan that is designed to achieve a profitable return by going long or short in markets.

In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option. Options are typically acquired by purchase, as a form of compensation, or as part of a complex financial transaction. Thus, they are also a form of asset and have a valuation that may depend on a complex relationship between underlying asset price, time until expiration, market volatility, the risk-free rate of interest, and the strike price of the option. Options may be traded between private parties in over-the-counter (OTC) transactions, or they may be exchange-traded in live, public markets in the form of standardized contracts.

CAN SLIM is an acronym developed by the American stock research and education company Investor's Business Daily, intended to represents the seven characteristics that top-performing stocks often share before making their biggest price gains.

Popular Science Predictions Exchange (PPX) was an online virtual prediction market run as part of the Popular Science website. The application was designed by the same group behind the Hollywood Stock Exchange using their virtual specialist application. Users traded virtual currency, known as POP$, based on the likelihood of a certain event being realized by a given date. Stock prices would range between POP$0 and POP$100 and were intended to reflect the general confidence of the users about that event. A stock at price POP$95 would mean roughly that users believed there to be a 95% chance of the event happening. If an event was realized by the given date, the stock will pay out POP$100 per share. A stock that did not occur by the closing date was worth POP$0 per share.

FameLeague is a gamification technology platform which drives fantasy stock market web applications for sports, people and show business. Licensees can customize FameLeague to create their own fantasy market games. It was the first flagship product of Gametize, a Singapore-based startup founded by Keith Ng and Damon Widjaja. It was a simulated stock exchange and a prediction market web application with more than 100,000 registered users. FameLeague adds gaming mechanics to prediction speculations, a concept also known as gamification, though that term is not commonly used in 2009.

In finance, box office futures is a type of futures contract in which investors speculate on upcoming movies based on their predicted performance.

HDFC Securities Limited is a financial services intermediary and a subsidiary of HDFC Bank, a private sector bank in India. HDFC Securities was founded in year 2000 and is headquartered in Mumbai, with branches across major cities and towns in India.

References

  1. 1 2 "Warrants paper trading". Australian Securities Exchange . Retrieved July 8, 2012.
  2. The Science behind PPX