Over the years I've read about many benefits as well as pitfalls, of using a Simulated Stock Trading Account. Of course a lot of this depends on whether or not you will be relying solely on this experience AND potential confidence before entering the markets for real. Personally, I feel the benefits outweigh the pitfalls, at least for me they have. Let's take a further look:

Benefits:

- One of the uses of a Simulated Stock Trading Account is to be able to test out different strategies. Many people perform "back testing" when developing and trying out various strategies, but using a simulated account for real time testing can be helpful as well.

- Another benefit is that someone can gain hands on experience in going through the order process of making a trade. While the simulated account program will undoubtedly be different than an actual brokerage account program, there will be some basic similarities.

For instance: being able to research a specific stock before entering an order, learning to use market and limit orders, seeing how to cancel an open order, editing an order, checking an order status and seeing the general process of placing, monitoring, editing and canceling an order takes place.

- The ability to see the effects of position sizing and hopefully experiencing a few simulated losing trades to see the effects on a total portfolio.

- You can get together with friends and test out strategies together, as a group.

- There is usually a large community of other traders, learning and sharing their experiences.

- If you want to have a little fun, many simulated trading account websites have frequent contests to reward account holders. Some have weekly or monthly cash prizes so it's like winning the lottery or going to a casino.

Pitfalls:

- One of the biggest pitfalls to using a Simulated Stock Trading Account is that it can build up a sense of over confidence. Many people say for this reason alone, not to use one. I disagree with these people myself. I feel that it should be up to the person using the account. If you can understand that trading in a live account with real money is different, than I see no reason to to use one.

You have to understand that having to close out a losing position that will result in you losing hard earned cash is a fact that will surely come about. It will be an unfamiliar emotional stress on yourself, but you must be able to follow through and take action.

With a simulated account, losing $5,000, $10,000 or more, doesn't have much if any at all, emotional stress due to it not being real. There's a big difference, but as I mentioned, I feel it should be up to each person as everyone handles stress differently.

- Another potential pitfall is gaining experience in the simulated account, and then moving to a live trading account that is completely different in appearance. This can throw some people off to begin with, but usually only for a little while. This can also happen by moving from one live brokerage account to another.

Conclusion:

As I mentioned at the beginning of this article, my opinion is that having a Simulated Stock Trading Account has benefits that outweigh the pitfalls. Like anything else we learn, there are always risks involved. Gaining the knowledge to overcome the pitfalls will help you win in the long run.

I also personally know of a Trading Coach that has taught many, many successful traders who has always used simulated trading as part of the learning experience, so I'm not alone.

If you want to practice stock trading without risking your hard earned cash, consider opening a simulated trading account. I have written a review of the account that I use myself, and have had for several years now here: Simulated Stock Trading Account Review