Online Stock Trading for Beginners - How to Trade Stocks Online?
The idea of sitting at home trading stocks and shares online and making vast amounts of money is very appealing! It certainly counts as one of the more satisfying ways of making money online. But unfortunately it can also be one of the more exasperating ways of losing money online.
If you are considering trading on the stock market therefore, there are certain basics you need to know. First and foremost you obviously need to open an account with an online stock broker, probably an execution-only stock broker i.e. a stock broker that does not give you any advice, they just take your order and buy or sell what you decide. This transaction to buy or sell stocks is nowadays usually done via your computer screen by you clicking on a button. It can also be done over the phone but most people prefer the speed and convenience of online trading. If you want advice you need a full broker, but they will probably want a minimum deposit of $100,000. To see a list of online brokers click here - best online stock brokers
An execution-only broker will provide all the information you need to trade stocks online, such as live real-time stock quotes, real-time online orders, all the latest up-to-date news, stock market charts etc... but they won't advise you which stocks and shares to buy or sell. You will need to decide that for yourself.
Once you have signed up with a broker you will need to study the markets to decide which stocks to buy. If you have never traded stocks before it is important not to jump in and just trade for the sake of trading. It is a good idea in fact to just 'paper trade' for a few months to see what would have happened if you had traded with real money.
It is also important to only trade with money you can afford to lose and finally it is important, if you are day trading or swing trading (trades that last a few days), to set up a stop-loss order. A stop-loss order is an order to sell a stock if it falls below a certain level (generally 4 - 5% below the purchase price). This means that the maximum amount you can lose is 5%. This is important as there is a tendency, when a stock falls in price, to hang on to the stock in the belief that it will recover. It is possible of course that it will recover but experience tells that there is more risk that it won't and stock trading is all about limiting risk. You cannot expect that all you trades will be winners, but it is important to make more money on the winners than you lose on the losers.
If you wait for a stock to recover you run the risk of losing 50% or more of your capital on one trade (believe me it happens!). One thing you must not do when trading stocks and shares is to run down your capital.
There therefore are the absolute basics of online stock trading for beginners. The next step is to put in place a strategy for trading stocks. You need to decide whether you are going to be a day trader (all your orders are opened and closed on the same trading day), a swing trader (trades last a few days or weeks) or a long-term trader (trades last a few months or even years). The best-known and most successful long-term investor is of course Warren Buffett aka the Oracle of Omaha, the second richest man in the world, so there is a lot to be said for long-term investing, but it does take a lot of knowledge and skill. If you think you may do well at long-term investing then I recommend you read up on Warren Buffett and the books he recommends.
For beginners, day trading is not recommended, unless you intend taking a specific paid course aimed at day trading and teaching you the necessary skills and knowledge. But bear in mind that most day traders lose money.
If you intend to concentrate on swing trading then there are also certain basics you need to understand about when is the right time to buy. Basically you need to buy when you expect a stock price to move up around 10% or so, then sell once the stock has moved up. To decide when is the right time to buy and not only how to trade stocks online but when, then you need to understand technical analysis and stock market charting for beginners at least, which will be the subject of our next post.
Home : Online Stock Trading for Beginners
