Joining the world of online trading presents unique opportunities for supercharging your bank account in a seemingly simple way. However, many nuances to online trading make it much more challenging than it first appears. It’s not a world for everyone as it requires dedication, commitment, unyielding willpower, and a mastery of self.
The past few months have seen a rise in interest in online trading – much of the curiosity driven by the sudden success of regular people participating in groups like WallStreetBets (a subreddit), where they have caused massive disruption and profit-taking of GameStop on the stock market. The gaming merchandise retailer’s made it evident that it’s easier than ever for a beginner to dip their toes in these trading waters. If its story inspired you, you can quickly join countless others and test your luck in this volatile market.
Still, you’ll need to be prepared and informed if you want to see a positive change in your bank account, so check out the following tips for getting started with online trading.
Learn the basics
The first step towards becoming an online trading pro is signing up for a trading crash course. Of course, considering the current situation with the pandemic and social distancing measures, signing up for an online course would be in your best interest.
Fortunately, there are plenty of free and paid trading courses you can join that’ll help you master the basics in virtually no time. Each curriculum is different depending on the instructor. Still, a crash course should cover the basic concepts – leverage, learning the terminology (pips, lots, stop, etc.), lot sizes, steps to placing an order, and more.
Keep in mind that no course can arm you with all the skills and knowledge you’ll need to become a successful trader. That can only come through experience. However, it should help you get familiarized with the essentials of trading and provide you with information that can help you avoid the most common pitfalls. And there is no replacement for doing your due diligence!
At the very least, if you don’t want to join a course, get yourself a book or do a bit of research. Knowledge is power, and it will help set you on a path to success.
Understand the difference between trading and investing
Before you start trading, you’ll also need to learn the difference between trading and investing. It will help you discern which option could be the better choice for you.
To beginners, the two concepts usually seem somewhat similar – in essence, you’re investing your money into a stock/share/future with the hopes of turning a profit once you sell it. However, while they do share some similarities, trading and investing are quite different. It all boils down to timing.
Investing is typically a long-term plan and passive in practice. As an investor, your job would be to analyze a company and determine its future potential to gauge its long-term value or growth capabilities. You’d have to wait quite a while to see whether your predictions will come true and prove to be lucrative for you.
Trading, on the other hand, is much more active and much more short-term. Depending on the strategy you adopt, you might only have to hold your position for a few minutes at a time. You would aim to turn a profit from minor mispricings and market fluctuations. As traders, we are the lifeblood of financial markets. If only investors participated, nothing would move – traders make markets and make the markets move.
As a general rule of thumb, trading is a bit more high-risk/high-reward type of deal.
Fine-tune your trading strategy
In online trading, there are as many unique strategies as there are traders. Naturally, there are a few key concepts that traders try to stick to, but at the end of the day, everyone has their unique approach. Of course, this means that you’ll have to develop your approach, which will depend mostly on your personality and risk tolerance.
If you tend to be a thrill-seeker, you might want to look into day trading strategies such as scalping – it requires making dozens, if not hundreds of trades a day, and your focus will be more on the quantity rather than the quality of the trade. As long as you close the day with more successful than unsuccessful trades, you’ll turn a profit.
Trading the range could be a good strategy if you’re the analytic type with intimate knowledge of the market. Fundamental trading and counter-trend strategies are great if you already have some trading experience.
Regardless of your chosen strategy, you must fine-tune and perfect it to suit your unique style and preferences.
Consider the risks
Perhaps the most important tip for becoming an expert online trader is learning risk management. Essentially, you’ll want to ensure that you’re not risking more than you can handle on a trade. While it’s virtually impossible to precisely gauge your wins or losses before the trade is made, it is critical to minimize your risks as much as that’s possible.
There are two common strategies for risk management – setting a stop-loss point and making a take-profit order.
A stop-loss order involves setting an automatic stop on an action (whether it’s buying or selling) when your losses hit a certain threshold. It will prevent you from losing more than you’re comfortable losing. On the other hand, a take-profit order involves stopping an action (whether it’s buying or selling) once you’ve accumulated a certain profit. While it’s tempting to wait and let a seemingly lucrative trade keep on improving, a take-profit order will protect against unforeseeable reversals.
Find a reliable trading app
To start online trading, you’ll need a suitable app. An abundance of trading companies provide platforms that you can access from any device – smartphone, tablet, or PC. You’ll need to set up an account with a reputable, regulated broker (regulated by agencies such as FINMA or FCA), transfer your funds (you can get funds from outside sources if needed), and start online trading.
Most reliable trading apps will have similar pricing, but don’t forget to compare the commissions before committing to an app.
Anyone can join the online trading market, but it takes hard work and commitment to benefit from it. What matters most is that you continue learning and improving, master your risk management, and stay dedicated.
References used in this article
- What Is Going on With GameStop? Meme Stocks Explained by Chandra Steetle, PC Mag
- What Is a Pip? by Matt Lee, Investopedia
- Trading and investing are two approaches to playing the stock market that bring their own benefits and risks by Clint Proctor, Business Insider
- 10 Day Trading Strategies for Beginners by Justin Kuepper, Investopedia
- FINMA Annual Report 2020
- Financial Conduct Authority