Those days are gone when only financial experts and business tycoons used to trade. Today, anyone who has a good financial background, access to the Internet and of course, sufficient capital can become a trader since online trading is increasingly popular.
Regardless of your experience, you can open a brokerage account just now and trade equities, commodities, currency pairs or even indices. Best of all, you can trade in all major international markets from anywhere in the world. Assuming you are a beginner, here is a guide for you to get started with online trading like an expert:
Table of Contents
Start With The Basics
Before you get involved in trading or open a trading account, you must know the ins and outs of the markets. It’s important to understand different types of trading, too. They are:
- Binary options trading: In this form of trading, the trader earns a predetermined payout based on how successful his prediction of the outcome is.
- Stock trading: It’s the form of trading in which you buy, hold, and sell stocks listed on the public stock exchanges.
- Options trading: For options, people trade contacts which gives them the right to buy or sell an underlying asset at a predetermined price.
- Forex trading: Forex is the art of buying and selling currencies to make profits on the difference in the value of the currency.
Do Your Research
The stocks you buy must gain more value with time and for that, you will have to do research prior to trading. Fundamental analysis can help you with that. It’s the process by which you consider the financial history of a company and its relationship with the public. You have to read its income statements, public statements, check its earnings, read news about it and consider a number of other factors to at least predict the future of the company. With all this information, you will know if investing in that particular company will be the right decision.
Apart from fundamental analysis, you can also do technical analysis. There are certain patterns according to which stocks move. These patterns help you access whether a stock will be successful and when. This method is not reliable on its own which is why it’s used in conjunction with fundamental analysis.
Choose an Online Brokerage Firm
Once you have decided which company and form of final instrument you want to invest in, it’s time to choose the brokerage firm.
You will have to do research before settling for a broker. Since trading is going to take place online, it’s important to test the security and reliability of the trader. For beginners, it’s best to choose a firm that’s popular as well as reliable. Such firms don’t just offer a variety of stocks to choose from but their trading platform is secure, too. These questions will help you choose a broker:
- Do they have a good background?
- What’s the speed of their site and accessibility?
- How good is their customer service?
- What financial products are they offering?
- Do they offer promos and perks?
- What is their minimum balance requirement?
- What is their account fee? Is it heavy?
Be Careful in Selecting a Stop or Loss Order
With a stop-loss order, you can minimize the loss on each trade and preserve your capital. It’s placed with a broker for selling a security when it reaches a particular price. Its purpose is to minimize loss on a position. In other words, if a trade doesn’t go as expected, it will save you from loss.
Choose a Reasonable Position Size
In the beginning, it’s ok to be uncertain. Experts say it’s best to start small and stay safe. It works when you are following a new trading plan. That calls for choosing a reasonable position size. Position sizing refers to the size of a position in your portfolio. In other words, it is the dollar amount you as an investor are going to trade. It is used to determine how much units of security you can purchase by controlling risk and maximizing returns.
Use Margin and Leverage Prudently
When you are trading on a margin, it lets you leverage the securities. In other words, you can pay less than the full price and still enter a larger position. Here, you must be cautious because you are using the money that is not yours. Trading on margin certainly lets you boost your return, but there is a possibility of losing more than your investment.
Once you are all set, you are ready to trade. Dedicate as much time as you can towards trading online growing your trading account. As your experience enhances, your trading skills will sharpen as well.