When you practice stock trading, one thing that needs to be taken into consideration is how realistic the game actually is. There are several reasons why someone who may be very successful in a practice environment might not see the same returns when taking the plunge into the actual real-world stock market.
The first thing to consider is the trading style. For example, in a practice environment, many people will be much less conservative and make riskier calls. From these risky decisions, there are often significant profits and high yields. However, when you practice stock trading as opposed to trading for real, if the trade doesn’t work out and causes a loss, you are not out anything (it’s not real money) and you have nothing to worry about. On the other hand, when a person is trading for real, they often make much more conservative decisions and much less risky investment choices so as to have less chance of losing their hard-earned money.
Another way that trading styles can differ from the practice environment to the real-world is that when people are actually investing real money, the emphasis is generally longer-term and the number of trades tends to drop when compared to the practice environment. People who practice stock trading tend to be more inclined to “day trade” and buy and sell stocks much more rapidly than those who are actually investing real money.
Now, this is a generalization and may not apply to you, and there are those who day-trade with real money as well as fund managers who make many trades per day. However, the average person investing real money for their own personal gain is probably not going to make as many trades as they will when they are working in a practice environment. Among other effects that this will have is that many of the gains that an individual might see in their portfolio may not be “realized” (the stock may not be sold) and the price of a given stock could easily go back down and the net-profit be zero.
Along this same thought, the fees that a person will often be assessed when trading real money may or may not be accounted for in a practice environment. This is something that has been addressed by many of the places where you can practice stock trading online with their current programming, but may still not be entirely accurate depending on your individual situation.
Another thing that some of the online practice environments have become much better at accounting for but are still not 100% and could still have some effect on performance comparisons between practice environments and real-wold trading is that many stocks pay dividends on a regular basis. In some practice environments, dividends are not accounted for at all which would mean real-world performance would actually be better than shown by the practice environment.
When actually trading money in the stock market, dividends can be either reinvested or taken as cash. Many of the practice environments do not account for this and do not give the person who wants to practice stock trading this option. In these cases, the “dividends” are added to the traders account as a cash balance with no reinvestment option. Depending on the performance of an individual stock, this can have either a negative or positive effect on the overall performance as compared to an real-world environment.
At any rate, what these examples show is that just because a person may be successful when they practice stock trading, it is not a guarantee that they will be just as successful when they do it for real. Likewise, someone who may not have much success when they practice still has a chance at making money in the stock market. These are just some observations and things to keep in mind when you practice stock trading to help you keep things in perspective and consider how realistic it actually is.