Subway track spark simulation

whats an ITAD?
I know the Phototransistor approach with IR LED

ITAD = Infrared Track Activation Device.  MTH makes them as do others. Google "MTH ITAD".  Basically they have an IR LED and mating phototransistor built-in.  But also has relay outputs so you can directly switch power to accessories (for example).  To your point, they are pretty spendy (I think $20-30) if you are willing to make your own. 

Here's another thread which has some examples of roll-your-own IR sensors.

https://ogrforum.ogaugerr.com/topic/infared-sensor

Seems like this stuff is more complicated then I thought. You mentioned others solutions like Magnets or reed switches. Which would be easiest to set up for a signal?

I suggest you pick one of the above threads and ask your question there; you'll get more opinions.  One thing I can say for sure is if interested in learning and building train circuits, then the 555 timer IC will be in your future...10 for 99 cents with free shipping on eBay.