So, you’re looking to start trading stock online? Then you’ve come to the right place – in the following post we provide a detailed introduction on how to trades stocks online with tips that can help you get started.
All of this has been boiled down to four, easy-to-follow, steps, as you can see below.
However, before we get into the nitty-gritty, there is one thing we have to clarify. Online stock trading is different from stock investments, and you must understand the difference.
When investing in a stock, you buy the actual company stock which represents a share of that said company. Your goal is then to hold on to that share for a longer period of time – often several years – with the hopes of selling the stock for a profit later on.
When trading stocks online, on the other hand, you buy derivatives of stocks with short-term goals. That means that you never own the underlying stock and that you typically sell it again within a few minutes, hours, or potentially weeks.
With that out of the way, let’s get started.
Step 1: Find a Reliable Broker
The first thing you have to do before you can start trading stocks online is to find a broker that will act as the middleman and that will provide you with the platform and tools you need to trade.
There are many online brokers to choose from but you should only ever use licensed and regulated brokers. Now, instead of finding these brokers on your own, you can use recommendations from other trading experts. For example, in the following list, some of Europe’s top traders share the best brokers when trading in the UK.
Step 2: Understand Different Types of Trades
After you’ve found a broker you feel safe and comfortable with, you need to understand the different trades that you can make. Generally speaking, there are 12 different trades that you can place with an online stockbroker, but we’ll just introduce the two main ones, to begin with. Otherwise, you risk getting overwhelmed which could result in you taking unnecessary risks.
- Long Trade – a long trade is your typical trade and the most common way of trading stock. The purpose of this trade is to buy the stock low and sell it high, ie. make a profit when the stock increases in value.
- Short Trade – a short trade is the polar opposite of a long trade and a concept used to bet against the market. When short trading stocks, you’re expecting the stock to decrease in value. Technically, a short trade is rather complex and it involves borrowing funds and reselling assets. Fortunately, when using an online broker, short and long traders are just as easy to place since the broker handles all the technical stuff for you.
Step 3: Learn About Leverage
It’s also very important that you understand the concept of leverage and margin since it’s a part of online trading.
To keep it short, leverage is a type of loan that online brokers provide so that you can increase your exposure on each trade. This is done to help you make a profit even from small market movements. You see, a stock won’t normally change that much in value over a few hours meaning you have to invest a lot of your own money to be able to make a decent profit.
The problem is that not everyone can afford to invest that type of money, which is why brokers offer leverage.
Here’s an example of how leverage works:
Let’s say you want to invest 10 dollars in a stock and the broker offers you leverage of 5X. That means that you place 10 dollars of your own money and that the broker times that with amount by 5, meaning your position is worth 50 dollars.
It’s a pretty simple concept that helps a lot of traders make more money than they would on their own. Just be careful, because, at the same time as leverage can increase your profits, it can also increase your losses.
Step 4: Study Strategies to Improve Your Opportunities
Finally, with the most basic understanding of how you trade stocks online, it’s time to actually learn how to do it efficiently. That means that you must study different trading strategies and techniques used to analyze assets, as well as practice on how to place and close the best positions for each unique situation.
Now, this is not something you learn overnight but it’s rather an ongoing process that you’ll continue working on for as long as you continue to trade. Even the best day traders out there are still learning new skills constantly.
Since you’re a complete beginner, you’ll most likely need a lot of practice. Therefore, we recommend you open a free demo account with your preferred broker. That way, you can practice trading without the risk of losing money, thus get an advantage over other traders that don’t have that option.