12. Investing/Trading Simulator (Behavioral Economics)
- Mr. Sam
- Mar 20
- 3 min read
Money is an essential part of our lives, yet many of us go through school and even into adulthood with little to no knowledge of finance, trading, and the economy. These topics can greatly impact our financial well-being, yet they are often overlooked in traditional education systems and even in our homes. As a result, many individuals struggle to make informed financial decisions or navigate the complex world of finance.
Trading and economics are complex fields that require a deep understanding of human behavior and decision-making processes. Moreover, learning about these concepts can be difficult and costly, especially when it comes to making real-life trades. That's where trading simulators come in. In this blog article, we will explore how using a trading simulator can help individuals better understand human behavior in trading and economics.
Directions:
Step 0. Go to www.tradenation.com/trading-simulator (no account or log-in required) and scroll down. Click the "Start now" button.
Step 1. Select your country. Most investors and traders are subjected different fees, regulations, and taxation depending on what country they are in. For example, most countries offer a variety of options such as foreign exchange, commodities, stocks, bonds, or even cryptocurrency. For this example, we will choose "Rest of the world" to get access to a variety of investment choices such as stocks and indices.
**Make sure to skip or to click continue when you see this page.
Step 2. Add your funds. This is basically adding money to your bank or trading account. Please note that everyone is different when it comes to risk tolerance. Risk tolerance refers to an individual's willingness to take risks in pursuit of potential returns. It is influenced by factors such as age, financial situation, and investment goals. In this simulation, we will choose $5,000 to experience the maximum effect on how price action can affect one's decision-making strategies.
Step 3. Select your market volatility. Volatility in markets refers to the degree of variation in the prices of financial assets over a certain period of time. Simply put, higher volatility means bigger price action in your investment, resulting in either greater gains or losses. Depending on your risk tolerance, you may choose any of the three options in this simulation.
Step 4. Choosing the direction of your trade. In the realm of investing/trading, there are only three options: buy, sell, or no position. Based on the news below (e.g., employment data release), you may choose to either sell (you believe the price of your investment will go down) or buy (you believe the price your investment will go up).
In this example, I speculated that the U.S. unemployment data came out as positive, which implies that the Federal Reserve will raise the interest rates even higher to combat inflation. This also means that the dominance of the U.S. dollar will rise, resulting in EUR/USD correlated indices like Germany 30 (stock index of Germany's top 30 companies) going down. Therefore, I picked "sell" for this exercise.Steps 5, 6, & 7. Choose your $ per point and Risk management. Choose numbers between $1-6 ($ per point) and 10-80 (Points away) depending on your risk tolerance.
This simulation uses leverage trading, which is considered extremely risky. Simply put, it uses your money as collateral (borrowed money) to amplify the gains and losses. Please note that a fine line exists between investing and gambling; therefore, knowledge of finance, market conditions, macro/microeconomics, technical analysis, and proper risk management are certainly required.
For this example, I used 5 $ per point and 80 points away for my Stop loss/Limit.
After following all the steps, simply click "Yes, run trade simulation."
Steps 8 & 9. While the simulation is active, timing is crucial; carefully decide when to click "Close trade," as if using real money. After closing your position, click "Review your trading summary" to see your results.
HOMEWORK:
Go to www.tradenation.com/trading-simulator and run the trading simulator. Place a trade, then close it to see your final results. In the comments section, write a short paragraph about your experience. What were your justifications for the position? Did you make a profit or a loss? What did you learn from the trade?
I chose mediume voltage because I personally dont like taking big risks but I also dont want to not take any risk. I thought at first to just teuat the process and it ended up horrible then I tried two more tines and trusted the process then I got excelant results.
I chose medium volatility because I wanted to learn money. I usually like to take no risks, but I chose medium volatility because there would be no profit. I got frustrated because the numbers were glitching in the screen, but I didn’t really expect much of a profit. At first, I didn’t know what to do, but after a few rounds, I still didn’t know what to do. I felt like I should learn more about trading and stocks. overall, it was very intimidating.
I chose medium volatility, because if the volatility is too low, there's no profit. But high volatility companies like Tesla are bound to give you a high profit or high loss, and from my experience, it's too risky.
There was a situation given that a company's CEO had been sacked as a fraud, and I thought that at first, people will be in panic because they will think that the market will fall, thinking that the new CEO will not be skilled or experienced to handle this situation. But because the previous CEO was a fraud, the company would have picked a smarter and skilled person. So, the market will become settled again, and profits will benefit me.
Another situation…
This was the factor given to me when I was participating in the simulator. I chose to sell my stocks as I could fell a drastic drop will happen in th market. The U.S. may be a strong country, but many of its manufactured items,or companies rely on China to generate their products. However, if China bans them, companies like Nike,or Apple will have to find another way to pay their employees as they can't profit enough of the money they earn currently. It woyuld lead for the peop;e to panic and the number of unemployed people to rise. That would cause people to spend their money way moe carefully which will result in the market to fall. Also,…
At first, I chose my market volatility to low volatility, and both the profit and loss were too small, and the trade stopped out quickly, so it was hard to earn a lot of money. When I set the volatility too high, I could get more profits, but could get more loss too. Maybe the volatility and the timing when you close the trade is important, but in my opinion, I think deciding if you should buy or sell at the first is more important. I always struggled to understand finance and economy, but from this experience, I knew more specifically about the market.