Basic tips to begin online trading

Basic tips to begin online trading

If you are someone that is independent and likes working on your own without having a boss to hassle you, then online trading is the way to go. If you get things right the sky is the limit as far as earnings go. Novice traders initially find it a challenge to understand the workings of the market. The good news is the use of technology in the financial sector has mad trading relatively easier. As long as you have adequate capital to trade, right tools and get the basics clear of the market workings you would do alright.

Types of trading:
Stock:

Holding, selling and buying of stock/shares of companies that feature on international or national public stock exchanges like the FTSE, NYSE and NASDAQ.

Forex:

This is also termed as currency or FX trading and involves the purchase and sale of international currencies to earn profits on the value difference of currencies in the world markets.

Options:

It is a type of derivative trade in which a trader trades a contract that has them have the rights (not obligation) to sell or buy assets at a pre-decided price.

Binary options:

Also known as all-or-nothing options in which a trader will be expected to receive a predetermined amount or nothing. This is subject to their market prediction of the market outcome for a particular event.

Doing the first trade:

When you decide to do your first trade you have to determine the securities or assets you would like to deal in. then you must decide the brokerage or broker that you will use to get market access. Your choice of intermediary will directly impact the securities you deal in, trading tools used, the fees involved and the expected returns on your trade. There are some unethical brokers out there that attempt to make trading appear complicated and complex to extort more commissions, transaction fees etc from novice traders. So be watchful and only work with a recommended broker that charges reasonably and facilitates the trading process by providing a host of resources.

Create a trading strategy:

The primary difference between investments and trading is the latter is subject to market movements to gain a profit. On the other hand, an investor relies on long-term movements of the price of assets that form part of their stock portfolio. While an investor will hold on to a particular stock or asset for weeks, months or even years a trader can make dozens of trades just within a week. Having a sound trading strategy in place cannot be overemphasized. You go about it by creating a trading plan. This helps to make sound decisions when there are volatile movements in the market that otherwise you would rely on emotions to make poor decisions.  Having a market ideology in place with a specific goal helps to motivate.

The strategy must include asset allocation and diversification with no more than 5% of capital placed on any trade. Trading losses should be capped at 5% and when booking the loss should be only 1% of the capital you trade with. Make it a point to include stop/limit loss instructions on every trade you make.

Make the most of the latest stock market technology:

With technology, you can benefit by automating many activities that otherwise would need you to be mentally involved. Using a stock screener will help to identify prospective winners and also losers. A few popular free stock trading tools include Google, Zack and MarketWatch among a host of others.

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