Options Trading Simulator (Chaptre 2)
Options Trading Simulator
The simulator will also indicate the stocks with the biggest gains on that particular day and those with the biggest losses. This is important information that can help and guide traders on how to place their trades. If you check out your portfolio page, it should now indicate 100 shares of WMT as well as some cash balance.
Here is what the various items on the portfolio page mean.
Buying power:
This refers to your capacity to buy options or shares and to trade. The buying power is typically based on your portfolio’s value as well as cash amount. It is not possible to make trades that do exceed your indicated buying power.
Account value:
This value means the total value of the portfolio as of that particular moment. This value is updated each night once the markets close. The currency of the account is also indicated in brackets.
Annual return:
This term on your purchase page refers to the total returns, as a percentage, if all your annual returns were to be extrapolated for a given year.
Cash:
Here, the amount of cash that you have in your account at the given moment will be displayed. The buying power display is considered a better indicator of financial position.
You will note that the account on the simulator is divided into 3 distinct parts. These are the option portfolio, the stock portfolio, and the shorted stock portfolio.
The stock portfolio will indicate all the stocks that you currently have. It will indicate all the different values such as company name, the number of shares and so on. It is important to learn how to interpret the Portfolio Summary page, it is important to now apply all these tools and ensure that you conduct trades as required. Let us now learn something else on the simulator.
Use of ticker symbol on the simulator
Even as you purchase stocks and options on the simulator, you may have noticed the system requesting a company’s stock symbol in order to place a trade. Each company that joins the markets receives a unique stock symbol. Once the symbol is awarded, it will be unique to the company and none other can use this symbol. The ticker symbol is sometimes chosen by the company itself or the bourse. It can be as brief as one single letter or as long as 5 letters. For instance, Ford Motor Company uses the letter F as its symbol
Ticker symbols
In many instances, news reports often quote companies using their initials which may confuse others to think of the initials as the ticker symbol. For instance, many newspapers across America often refer to the company Hewlett Packard as HP yet the company is quoted on the bourse as HPQ. This shows the need and importance of confirming a company’s denotation or ticker symbol before entering any trades. Any time you wish to purchase shares, stocks or options and all other financial instruments quoted at the markets, make sure to check the ticker symbol. Do not make a guess or an assumption otherwise you may purchase the wrong stock. Fortunately, most brokerage firms allow you to look up ticker symbols with their accounts. The trade simulator provides the same tool to search for a company’s ticker symbol.
How to research ticker symbols on the simulator
Now, try and search for the ticker symbols of companies such as Pier 1 Imports and Nike. First, you click on the symbol lookup tab. This tab is found when you click on the Stock Research tab. You will receive a prompt so proceed and enter the search term, Nike and click search or enter. You will be shown the symbol NKE and a confirmation of the company whose ticker this is. Similarly, when you follow the same procedure to find the ticker symbol of Pier 1 Imports, then you will receive the ticker symbol PIR and a confirmation of the company’s details. This shows how fast and easy it is to find a company’s ticker symbol.
Diversify your portfolio with the simulator
As an investor and trader, you should always diversify your portfolio. If you do not and instead put all your funds in a single product, then you risk losing all your funds should things not work out with the trade. Simply put, you should always diversify your trades. The best way to succeed is to purchase and build a diversified equity portfolio.
However, you need to be smart when you diversify. For instance, if you choose to invest in McDonald’s Corporation, you should avoid investing in another fast food chain. The reason is that, if the fast food industry were affected, your investments as a whole would take a hit. You should, therefore, buy some McDonald's shares and then diversify into a different field, say energy sector. You can consider buying shares in ExxonMobil, for instance. When making real life decisions, you need to take a more scientific approach. This means using a system that ensures you diversify your portfolio in the right manner.
The GICS or Global Industry
Classification Standards is widely used by traders, investors and fund managers
among many others to diversify their portfolios. This system splits the economy
into 9 different sectors. These 9 sectors are listed below.
- Energy
- Financials
- Materials
- Industrials
- Utilities
- Information Technology
- Telecoms
- Consumer
- Health Care
Let us assume you already own WMT, PIR and TLAB shares. This means you own shares of Walmart, Pier 1 Imports, and Tellabs. You, therefore, want to avoid buying shares or stocks in the Telecom or consumer discretionary sectors. However, you can still purchase stock from 8 sectors. With the simulator, you can use a stock screener to get a list of available stocks within a particular sector.
Simply get onto the simulator
and run a stock screen for your preferred sector. Now proceed to check out
which stocks meet your analysis requirements and also interest you. There is a
lot more to portfolio diversification and all these cannot be summarized here.
Traders and investors often consider many other factors when diversifying their
investments.
