It sounds very easy to make money trading online: invest few dollars in a company than wait for the share price to go up and than sell, sell sell! In reality though trading online is a tricky business and there are lots of risks so it has to be done with caution.
‘Trading online without knowing all the rules can be one of the best way to lose money’ says Ethan Rowe, trading expert at TopTradingPlatforms.co.uk. He also said that customers will normally start trading first only to realise that they are losing lots of cash. At that point they come to his site to ask for advices but in most cases, it is already too late as they have already lost their trading capital.
If you want to skip this gloomy life lesson, make sure you do some research before opening an online trading account. Surely the risks will always be there but you will be in a much better position and have much better chances of making a profit.
‘Even those guys who are professional online traders and do this for a living say that 80% of their trades are losers’ continued Rowe. From a research done by the Financial Times. normally a top trader is the one that is getting it right 55-60% of the time, max. Below we have prepared a step-by-step guide that surely won’t make you rich today but that it could go long way in preventing you to lose big time at the first dip into the water
How to Get Started With Online Stock Trading
1. Know the Difference Between Trading and Investing
In both cases the markets are involved but there are lots of differences. In investing you put money into a large range of funds and than leave them there for long time. In trading you are buying financial assets like stocks, gold, forex and others with the believe that the value of those will increase in the near future so that you can sell and make a profit out of it.
2. Find Your Niche
To be successful at online trading you need to specialise. You can’t be an expert on every financial assets so pick the ones you see most opportunities or you have more interests and focus on those. To become a successful trader you will need to know the ins and outs of that particularly industry as this will likely give you the hedge you need to stay ahead of the competition.
3. Make Your Hypothesis
Remember that winning at trading is to anticipate what it might happen next. So don’t follow the markets but make sure that in every move you think something like this: I am buying this asset because I think it is too cheap. I expect the price to go up to X and I will sell it when it reach Y.
4. Practice On Paper
Do a proper strategy and stick with it. Put down in a paper your hypothesis on a financial asset and then wait to see if the market moves in the direction expected or not. This will ensure you take emotions out of the equation and also have a much better structured approach.
5. Realise Your Limitations
It is not a surprise that those days computers do the majority of trades. Decisions are made instantly with machine learning algorithms. You will never be as fast or emotionally detached like a computer so you trading online will never be as lucrative as for a corporate Wall Street firm. For this reason set some realistic targets of what you can achieve by trading and work towards those step by step.
6. Pick Your Website
The good news is that with the increase in competition online brokers had to cut their fees which means the end customer pay less for a trade. It is important that you will spend sometime to find the online broker that is reputable and that best suits your trading style.
7. Understand the Psychology of loss
Winning is a great feeling but losing can hurt. Normally it hurts a lot more than the joy we feel when we win. This is called loss aversion and tend to bring into panic. With panic you will only lose more so it is important to have a strategy in place that will prevent you to go down into that circle.