Step-by-Step Guide to Trade Online
Online trading is accessible to everyone. All you need is a laptop, a home computer, or a mobile device to open a trading account, enough money to invest, and you are good to go.
The best part is, you do not have to be a professional broker or a businessman with a fortune to spare. That said – you must not take online trading lightly.
7 Steps for Online Trading
Here are seven steps you can follow to begin and end trading.
#1: Selecting an Online Trading Platform
In simpler terms, the first thing you must do is research and find out which online trading platform, aka which broker you would like to work with. You need this online trading platform to store money (capital and gains), execute trades, and accumulate your stocks.
There is a wide variety of online trading brokers out there, offering different types of accounts, support, and services. Therefore, you must choose the type of account that offers the most convenience, guidance, support, and user-friendly experience.
#2: Deciding How Much You Can Invest
Once you have decided which broker you will use for trading, it is time to decide how much money you are willing to invest. Most online trading platforms will require you to have a certain amount of cash/capital to open a trading account with them.
Your investment amount will also depend on how frequently you are planning to trade. Are you going to buy stocks and hold on to them, or are you going to trade rapidly? Some brokerage may or may not charge you for an inactive account, so find out how much using a platform will cost you.
#3: Learning the Trading Tactics
The most decent brokerages offer research tools and trade assistance. Learn to use these tools to your advantage for market analysis, pricing, and analyzing profit and loss.
#4: Opening an Online Account
Two basic trading accounts you can open are as follows:
· Cash Account – This trading account allows you to use money in your account to buy stocks.
· Margin Account – With this account, you can buy stocks on credit.
If you are an online trader in the U.S., you will provide information about your financial and investment history. This allows the broker to determine your eligibility for the account you requested.
The next step will be to provide your personal information, which includes:
· Full Name
· Address
· Contact details, i.e., phone number and email id
· Social Security Number (SSN)
· And other personal information as per the broker's internal requirement.
Once you have an account, it is time to transfer the money you wish to invest in.
#5: Researching the Stocks
So, you chose an online trading platform, opened an account, and the money is in. What are you waiting for? It is time to start investing. But wait, which stocks are you going to choose? This is where it all gets tricky.
It would be best if you learned to research the stocks by doing the following:
· Start by thoroughly analyzing the company or stocks you are interested in
· Look at the public information available about the stocks such as earning reports, historical price trends, highest and lowest prices, and the volatility, i.e., frequency and extent of price fluctuation.
· You may get this information on the broker's trading platform with stock's new and risk ratings, etc.
Once you feel confident about picking the stocks, it is time to test your knowledge and start with investing a single or couple of stocks. Invest a limited amount of money that you are willing to lose in case your forecast proves to be wrong.
In case you end up with profits, you can always plow them back into buying more stocks. However, you must not invest any more of your money into the stocks unless you know exactly what you are doing. Sometimes, it is good to research how other players make their moves. Better to learn from others' mistakes than making one yourself.
#6: Calculating Your Profits and Loss
This step is more of a continuation of step 5.
While you learn how to research stocks, it will also help you gain knowledge if the stock you are interested in will be profitable or not a good investment. Here are simple tips for you to calculate or predict profit and loss.
First, you need to check the stock's position size and the number of pips its price has moved. You can predict the profit or loss by multiplying the position's volume by the pips it moved.
You must familiarize yourself with the concept of short position and long position, which are:
· Short Position – here, if a stock's price moves up, it will result in a loss and vice versa.
· Long Position – this one is precisely the opposite as an upward trend in the price will translate into profit, and a downward trend will be a loss.
#7: Making the Trade
You have researched the stocks and gauged their profitability; it is time to make the trade. But before doing so, you will need to obtain a real-time stock quote to confirm the current stock price.
However, you have to get the most updated quote because a quote delayed by a few minutes may differ substantially from the current quote and break the deal.
Once you have the quote, you can choose to place a limit order or a market order.
· Market order – executes at the current stock price in the market.
· Limit order – executes at a price that you specified or better than that. In this case, if the price does not match the limit you have set, the trade will not execute.
Review the Risk
Lastly, after you have ended the trade, it is always good to review the risks you took. Did you stay within the investment limit you set? This will be an on-going process. The more you trade, the more competent you will analyze your stocks, profits, losses, and risk involved in online trading.
For a deeper look into strategies and being an effective trader: