Using an online trading academy, spending plenty of time reading guides, and assessing your trading style, it is possible to make a comfortable living with online trading – and secure your future nest egg.
We have all heard that online trading is a smart way to make your money work harder for you – but what is trading? How can you get started with trading online? And, what is a broker?
Trading used to be the stomping ground for those on Wall Street; we’ve all seen the movies. They’re fast, furious, a lot of yelling, and some highlight significant losses. Now, the public can trade online – and you don’t even need a broker (although it is better if you).
An experienced trader is likely to have hundreds if not thousands of successful trades on their books. Between being a beginner and being a skilled trader, there is a lot of ground to cover.
So here is what you need to know before you start.
What is trading?
Trading involves the buying and selling of the following:
- Commodities
- Stocks
- Currency Pairs
- Bonds
- Options
- Futures
Stocks are typically the most popular, but you can trade what you like.
The goal of any trade you make is to make a profit by buying at a lower price and selling at a higher price.
This typically happens within a short time. It is possible to make a profit by selling at a higher price and buying to cover at a lower price – a selling short technique. The profit is found in falling markets.
What is an online trading broker?
Going out on your own (without a broker) is a risky business, but it is an acceptable option for you if you have a high-risk appetite and don’t mind all of the leg work involved.
If, however, trading is going to be a long-term part of your financial plan, and you want to maximize your opportunities, then a trading broker can help.
Your broker will be a company, app, or person between you (the investor) and the securities exchange (where you access the asset you want to trade).
Private traders and investors use a broker as they (the broker) are members of the exchange. An exchange will only accept an order from those who are members.
Brokers offer this service and are paid in various methods, including commissions, fees, and payments from the exchange.
How can you choose the best broker?
You will be faced with the difficult decision of choosing the right platform for you. It’s not going to be enough to read a single glowing review and choose.
One of the first features you should be looking for is reliability and security – opt for highly recommended companies, and do your research into their security and privacy policy.
Pay careful attention to fees, charges, or other monetary requirements to maintain your account. You’re looking for terms like trading commission fees. Know what you are going to pay in terms of account maintenance.
The brokerage firm you choose should align with your long-term financial goals and offer an online trading academy to support your learning goals and trading education. These extra features mean that new traders are more likely to approach trading in a calculated manner.
If you are on a broker or trading platform that claims you will always see a return on your investment, this is usually a warning sign. There is no way to guarantee that you will see a return on your investment.
When you are just starting, it is vital that you prioritize your learning, consider practice trades, outstanding support from staff, and comprehensive guides and glossaries a must.
Are there different types of traders?
Much like investments, there will be a risk appetite that may drive some of your decision-making. The trader’s style is how long they hold on to the trading instruments. Over time you will learn your own style, and how to use it to your advantage.
Day Trader: They hold positions throughout the day only, with no overnight positions.
Scalp Trader: Positions are held for a few seconds or minutes, and like the day trader – no overnight positions are held.
Position Trader: Position traders hold for months to years
Swing Trader: Positions are held from days to weeks
Most often, the category you fall into will be dictated by the time you can dedicate to your trading, the size of your account, and your experience.
What is risk tolerance? Your risk tolerance is the amount of loss you would be willing to handle. Read more: Risk Tolerance.
Can you be a bad trader?
To become a successful trader, there are three key ingredients: Knowledge, Experience, and Effort.
Knowledge will be the basis of every trading decision you make, and experience will be your guide over time. The third, of course, is effort – you need to be willing to be consistent and dedicated to what you are trying to achieve.
The biggest reason traders will lose interest or fail to make money is that they didn’t study.
How much money do you need to start trading?
The most asked question from those considering trading is how much money they should start trading.
The truth is the amount will vary. You need to factor in what you could afford to lose, how much the commission and fees are, and how much the stock you want to buy is.
Check with your chosen trading platform if they have a minimum, but most new traders will typically start with less than $1000 as they learn the ropes.
Online trading has quickly secured its position as a must-have skill when it comes to building future wealth.
