Many new investors in stocks burn their fingers when the market cycle turns. Usually, they start trading when markets are heading towards the peak. Initial success boosts their confidence, and they end up piling losses when a big correction happens. Some cautious amateurs wisely resort to virtual stock trading platforms to learn the tricks and test themselves before taking the plunge.

To understand direct stock investing and trading, Sapna Mahajan, a Mumbai-based physiotherapist, recently signed up on a virtual platform.

“Rather than lose money in the real world, I thought let me try out market simulation to check my understanding. I wanted to check out whether I can make money by following experts’ advice, following research reports, and understand how news affects stock prices,” she says.

Play the game right
Novices may use virtual trading platforms to learn the basics of trading
Seasoned investors may use them to test their strategies
If you do well on these platforms, don’t get overconfident
Investor behaviour changes when real money is at stake

Experts say these platforms are a good for newcomers. “Virtual platforms are good for complete newbies, who have not invested in stocks before,” says Jimeet Modi, chief executive officer, SAMCO Securities. These are offered for free. Amateur investors can learn how to execute orders, what an order note is, see for themselves how stock prices change, understand how diversifying portfolios can mitigate risk, etc.

Among the many platforms available, the National Stock Exchange (NSE) offers one under its NSE Paathshaala programme. Most platforms operate in a similar way. Upon signing up, you get an amount ranging from Rs 10 lakh to Rs 1 crore.

They function only during market hours and have a screen similar to the trading software offered by many brokers. One can see constantly changing feed, create watch lists, take positions in futures and options.

These platforms have a few limitations, however. “They cannot replicate real market conditions like fall in liquidity. Also, investors behave differently when real money is at stake. For most new investors, it’s usually that one wrong bet that wipes out their funds,” says Nithin Kamath, founder and CEO of broking firm Zerodha.

Doing well on virtual platforms offers no guarantee of success in real life. Investors should, therefore, not get too confident when they shift from virtual to real-life investing.

Start small when you make the shift, suggest experts. “For at least a year, the investor should trade with money she can afford to lose,” says Kamath. In a year or year-and-a-half, the investor will be able to experience all facets of the markets: Volatility, rally and correction.

When you are looking for a virtual platform, avoid those that ask you to predict stock movements and offer prizes to those who do so correctly. The Securities and Exchange Board of India (Sebi) recently issued an advisory against such platforms. If investors participate in such competitions, it is at their own risk, as these are not regulated by Sebi or recognised by exchanges.

“Sebi is rightly against such models, as they can be misused to lure gullible investors into investing in certain stocks,” says Rajat Sharma, CEO of Sana Securities. Sharma, also a lawyer, was approached by a foreign client to launch a stock market game that deals with futures and options. After studying Indian laws, he advised against it.