An Easy Guide to the Basics of Online Trading

Stock trading has now become accessible and easily available for everyone and this is due to online brokerages.

Know the Basics

Prior to the services these online brokerages, people depend on the services of a stock broker. They are the ones making the buying and selling on behalf of the investors. However, today, people are able to do these things conveniently with the use of computerized trading services.

Indeed, trading can make you a fortune, yet it can lead you to a crucial point, especially if you are not familiar with its tools, the theory behind it, as well as with the analyses of the market reports that drive the economy.

I. Stock Market Basics

Like other businesses, basically the stock market functions on a system of supply and demand. When the price of a certain stock goes up, traders will compete by means of a bidding just to own it. When you buy a stock, you got the hopes that there will be enhancements and developments in the firm’s value and potential.

In choosing your stocks, there are two main philosophies being followed. These are fundamental analysis and technical analysis. In fundamental analysis, a trader depends on the financial reports and public statements of a company in order to analyze the status and position of the business. The most important tools when doing fundamental analysis are balance sheets, income statements, quarterly and yearly earnings and even news releases from the company. The other one, is technical analysis, traders look for patterns to detect when stock prices are on a swing. You can also opt to use a mixture of these two techniques – choose a company with healthy fundamentals, then watching for technical indicators in the market. As a rule of thumb, before deciding to buy or sell stocks, you must first research the company well along with its current leaders and competitors.

II. The Process of Online Trading

Before you can start trading online, you have to start by choosing your online broker. Online brokers are the ones executing your trades and are responsible for managing your money and stocks in an account. There are various online brokerage firms that offer different levels of services, account types, and other means essential to your trading needs.

In choosing your broker, it is better to keep in mind the following:

How much money can you risk investing?

There are firms that require investors a minimum initial investment to open your account. Beware also of minimum account balance, since there are brokers requiring such from their clients.

How frequent do you plan to make trades?

There are traders that are happy with just owning one stock and holding on to it. If this is the case, it is better to check with your online broker if they charge for account inactivity. Conversely, if you want to make several trades, you might want to look for a broker offering lower fees per trade. What matters is, you have to consider how much it will cost you when you are using the site.

How much guidance do you need?

This depends on the amount of your trading experience. There are less expensive brokerages, but they do not offer much guidance like research or broker-assisted trades. Look for a broker with a good price that you can afford and one that offers market analysis, articles regarding trading and assistance from licensed brokers. .

How do you intend to diversify your investments?

Aside from buying and selling stocks, you can also make other investments online. However, this depends on the services your online broker offers. There are films that allow you to trade in options, mutual funds, bonds, and even futures.

III. Making Trades

After officially opening and funding your account, you can already start buying and selling stocks. It is advisable that you get a real-time stock quote to confirm the present stock price. There are brokers that offer real-time quotations and there are others that offer delayed quotations, which are several minutes behind the market. Such would not be helpful any longer if the market is moving quickly since the trading price may vary already.

In making a trade, there are particular movements called market order or limit order. In the market order, your trade is executed at the current market price of the stock, whereas in a limit order, your trade is executed at a better price or with a limit you set. If the price does not meet the criteria, your trade will not get through.

Other online brokerages offer additional options such as stop order, stop limit order, and a trailing stop order.

IV. Trading Tips for Beginners

Online stock trading can be frightening for beginners, yet here are a few tips to help you make smart investment decisions.

  • Do not start trading if you cannot commit your time to do enough research.
  • Do not buy high.
  • Do not let fear consume you.