Trading Simulator – What Is Its Role for Your Trading?

Trading Simulator - What Is Its Role for Your Trading main

Whether you are trading commodities, futures, stocks, bonds, or forex, it is your desire and that of every other trader to become successful. However, success in trading is a multipronged concept that incudes your ability to analyze the market and come up with strategies you can deploy.

Even with all the fundamental and technical analyses done and strategies formulated, there is still one more step to go – testing your tools of trade. You need a safe space where you can deploy and test your strategies and market assumptions by opening and closing positions risk free. This is the role that trading simulators play.

Practicing your trades with the best trading simulator will ensure you learn as much as you can on financial markets, and the various assets you can take positions in. You’ll also familiarize yourself with the trading platform and how not to place your orders.

Importance of Strategies in Trading

Before getting into trading, you must have a plan of how you’ll enter the market, take profit, and exit. This is what a trading strategy is. It is an objective, consistent, and quantifiable plan founded on technical and fundamental analysis with clear goals that a trader would want to pursue to achieve a profitable return.

A trading strategy is important in helping a trader construct a portfolio of financial instruments that add value. There are lots of assets in the market and knowing what to buy and when, requires a well-crafted strategy.

During portfolio rebalancing (changing assets), traders must have a clear path to follow when deciding what to jettison and what to keep. For instance, if an asset drops below a certain price point, a strategy can help you limit losses or take profit depending on whether you’ve opened a short or long position.

A strategy also helps to align your trading to your risk tolerance. Every trader has their level of risk tolerance both for short-term and long-term investments. As lifestyles and financial realities change, traders must also tweak their strategies to reflect such changes.

How to Test Trading Strategies

Once you formulate your trading strategy, you must test it to see if it works or not. There are several ways you can achieve this and here are three of the most used in the industry
Test the Logic Behind the Strategy: For instance, if your strategy is built around trend following, the underlying logic is that you buy and sell depending on whether the market is on an uptrend or downtrend and see if it holds.

Back Testing: Using historical data, you can test how well your trading strategy would have performed ex-post. How far back you should test will depend on your holding period. For instance, if your asset holding period is over a month, you can backtest for 15 years. However, for intraday strategies, you can backtest for just 10 years.

Likelihood of your trading strategy collapsing: You can adjust the parameters of your strategy and see if it will hold out or break down. For example, instead of a 200-day breakout, you can adjust to 150-day breakout. Alternatively, you can change from 5-day ATR (average true range) stop loss indicator to 7-day ATR and see how your strategy responds.

What Is a Trading Simulator?

A trading simulator is an online tool or software that traders use to practice their trading strategies and asset picking skills. They are usually free to use. You simply signup for an account and set the simulated amount of money you want to practice with and proceed with the simulated investments.

Trading Simulator - What Is Its Role for Your Trading

What Is the Role of Trading Simulators?

Trading simulators play crucial roles in helping novice investors learn about trading and investing. For example, they will learn about fundamental investing concepts, market volatility and the impact it has on assets, how to read security tables, and interpret real world events such as earning calls.

Trading simulators are packed with a collection of tools such as price charts, price-earnings ratios, and historical averages to help beginner traders in research.

How To Choose the Best Trading Simulator?

Although trading simulators are developed to achieve the same purpose, they are designed differently. Whether you are a novice or experienced trader, here are some tips to help you get the best trading simulator in the market.

Real Market Exposure

Choose a simulator that gives you exposure to real market asset price movements. This will help you identify trading opportunities, market fluctuations, and live trends. Real-time data will help prepare you for a real trading experience.

Allows Flexible Virtual Amounts

The trading simulator should ideally allow you to start practicing with amounts that reflect the real investments that you would want to make. Practicing with tens or hundreds of thousands of Euros or dollars of virtual money may not teach you the risk management and trading skills you need to survive in the real-world trading.

Software Tools and Features

A trading simulator boils down to the tools it packs. Look for simulators that give you access to real-time price data, backtesting options, heatmaps, customizable charts, and buy or sell functionalities. Avoid simulators that give you a simplified interface which will require that you upgrade to a more complex one when you begin trading with real money.

Reputable Provider

Since the plan is to pivot to real trading after the demo period, look for a simulator from a broker that you can stick with. Check whether the broker is licensed and regulated, has a wide range of instruments (stocks, bonds, futures, CFDs, crypto etc.), has a strong customer support, and affordable fees.

What Is/Are the Best Trading Simulator?

In case you are wondering whether there is specific simulator software; the answer is yes. The Meta Trader 4 (MT4) and Meta Trader 5 (MT5) simulators by Admirals are the best multi-asset platforms for novice traders and investors.

They are simple to use, give you a host of free market data, superior charting, access to thousands of markets, and a solid multilingual support system. Simply download, install and you are ready to demo with virtual money.


Trading simulators are the best platforms to help you practice your trading skills and portfolio construction techniques. You get a real trading experience, with virtual money, and support from a collection of trading tools. Ensure you get your trading simulator from a reputable broker to avoid switching from one provider to another once you are done with your demo.


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