Advantages and Disadvantages of Using an Online Trading Simulator


An online trading simulator is usually a feature integrated into an online trading terminal. Not all trading platforms are equipped with this feature, and it’s quite a shame, as a simulator is a great way of testing different strategies and activities without risking your capital. However, there are both pros and cons to using this tool. Keep on reading to discover how to make the most of this tool, and how to avoid its risks.

Top advantages

An options trading simulator can be used by both independent traders and trading firms. Here’s how to put it to the best use:

  • For novice investors: those of your who are new to the trading world, can benefit greatly from using a simulator. Firstly, this tool will give you the opportunity to learn how to use your trading platform, without risking your capital. Secondly, it’s a great way for learning how different markets work and how to analyze and process valuable market data. It is also an excellent tool for building a framework for your future investment portfolio. 
  • As a teaching tool: Whether you run a trading business and you are looking for a way to train your employees, or you are teaching an investment class and you want to introduce your students to the online trading world, the trade simulator is the best teaching tool that you can use. 
  • For trading competitions: If you want to test the skills or your traders or your students, there is no better way to do it than with a virtual trading competition. To set up the competition, you will need to use a trading platform with a powerful cloud broker back office. For the best results, we recommend the ETNA trading platform. 
  • To test complex trading strategies: While it is a great teaching tool, the trade simulator can also provide numerous benefits for experienced investors, looking for a way to trade complex strategies without any risks. You can follow up on your tests to see how your strategy performs in the long run, and refine it accordingly. 
  • Connect with third party apps: Most simulators give you the opportunity to connect to other trading tools to build a personalized trading experience. You can subscribe to investment newsletters, listen to finance podcasts and much more. This is a great way to stay in touch with the latest market trends. 

Possible drawbacks

  • Limited options: Most simulators have enough bells and whistles to simulate a basic trading environment. However, no simulator will ever give you access to all possible securities and trading parameters in order to replicate the real trading experience. 
  • Risk free: While the absence of risks is the main advantage of a trade simulator, it can also be a possible drawback. The truth is that when you don’t put actual money on the line, you are not that invested in the trading experience. This can mean that you don’t make enough research, you don’t build a good risk management system, and you don’t explore all your options before making the virtual trades. Moreover, it can be very easy to forget your mistakes, when there are no real consequences to deal with. This brings us to the next major drawback. 
  • False sense of security: This is particularly true for novice investors. When you’ve used a simulator for a while and you had the luck of getting some good results, you may be lured into a false sense of security, which can be very dangerous when you start investing real money. You might even say that simulators encourage risky trading behaviors 
  • No impact of external factors: The real-life trading experience can be influenced by a wide range of factors that have nothing to do with the market. A person’s risk tolerance, their short and long-term objectives and the local taxes are just a few of the many real life constrains that can affect online trading. It is important to take these factors into consideration if you plan to invest in a strategy that yielded good results in a simulation.