How to Practice Investing in the Stock Market

As with most every skill, investing in stocks, bonds, derivatives and other securities takes time, patience and practice to master. Before playing the markets with real money, it's good practice to take investing courses as well as track would-be investments on paper to learn from your mistakes.

Difficulty: Moderate

Instructions

1. Pick up a good book detailing the basics of stock market investing or take a course or weekend seminar from a reputable source. If you trust your ability to differentiate scams from legitimate opportunities, you can also find a wealth of online information for the novice investor. Remember, though, that many investing websites make promises they don't keep.

2. Familiarize yourself with the important terminology used in stock trading and the normal method used to buy and sell shares of a particular stock. For domestic markets, trades can be made directly using an online or telephone-trading account or through a stockbroker. Don't forget to factor brokerage fees into your practice calculations of profits or losses.

3. Use a spreadsheet, or simple pen and paper, to open a practice trading account. Limit the amount of money you assign yourself, starting with a threshold of $10,000 or $25,000 to get you started. Remember: you're doing this to get a realistic idea of how you'll fare when you start investing for real.

4. Research and choose companies to invest in. Try to diversify your practice portfolio just as you would in real life by investing in a variety of different industries and investment types (stocks, bonds, mutual funds). Watch the markets throughout the day to decide when to "sell."

5. Track your performance by making a log of every transaction you make. Note the dates you bought and sold the shares, as well as the purchase and sale prices (and therefore your profit or loss margin). Try to detect trends, such as buying or selling too early.

6. Remember that the age of the Internet has introduced a great number of stock market simulators, easily accessible online. They can be excellent tools to teach beginners the basics of how practical investing really works. Keep in mind, though, that you may be asked to pay a membership fee.

7. Continue to practice until you feel comfortable with the idea of investing your own money. Being able to predict the course of a stock with a reasonable degree of accuracy is a good indicator that you may be ready to move into the real world of stock market investing.

Tips & Warnings

• Head online to find a stock market simulator that allows you to practice your investing in real time. These software applications are particularly useful to people who want to get into day trading.

[nxfxcom]

on 12/28/2008 I tried www.updown.com, its fun and you can actually earn real money, not sure about marketocracy.com and socialpicks is pretty cool too!

[MichaelReich]

on 8/23/2008 Great sites to practice investing are www.updown.com, www.marketocracy.com, socialpicks.com. They are all free to join and you learn about investing in a risk free environment.