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If you want to have financial freedom, it's essential to educate yourself on online investment or investment strategy. One of the ways you can achieve financial success is through online trading.
However, you need to know the basics of online trading to get confidence in assessing available options.
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Here are the steps of starting online trading:
In This Post:
1. Pick a Reputable Broker
If you are new to online trading, the first step is opening a brokerage account. The broker should be a respected and trusted online platform. There are many online stock brokers, but some are better than others, like Olymp Trade, and you can read here about it.
While considering a trading platform, consider factors such as traditional commission fees, available educational tools, and intuition of the website or app.
Choosing the best trading platform depends on personal preference, and therefore, traders will have more options. Many brokers are specializing in perfecting the user experience with their apps.
2. Research on Instruments to Trade
After having a brokerage, it's time you consider the stocks to trade. If you're new to online trading, choosing stocks may not be the best place to start but ETFs. With exchange-traded funds, investors can buy many stocks at once. That helps when you don't feel confident about picking one company over the other. An experienced trader will diversify their holdings using assets and not stocks like bonds. That helps to hedge their risks during downturns of the stock markets.
However, deciding to invest through individual stocks, consider financial analysis ratios to compare its performance. It is a hassle to choose individual stocks, but with extensive comparative analysis, you'll be sure you're selecting the best stocks.
3. Pick The Right Trade
If you decide to buy and sell ETF, stock, or other assets, it depends on the trade order you'll place. The basic types include the limit orders and market orders.
Limit orders will not execute right away, although you get significant control over the price to pay. Market orders, on the other hand, executes immediately with the best available price.
After you own a stock, it is best to consider placing a stop-loss sell order. With that, you can continue riding positive momentum where you can sell automatically after the trade turns on you.
Nevertheless, there is no order type which is better than the other. That's because all have their place, and when you learn many of them, it helps you ensure you use the right tool.
4. Determine The Cost
One of the challenges that most people face in trading is expenses. These are money you'll pay to buy trade securities. Among the expenses you'll incur will be commission fee, and you have to consider while planning to invest.
If you consider a brokerage that will not charge you a commission fee, therefore, you'll not incur expenses. But, trading ETFs, mutual funds, or other types of investments understand the investment ratios. That's because these funds will be managed by an individual who will get paid a percentage every year. For example, if ETF will have a ratio of 0.2%, you have to pay $0.20 per year on every $100 you will invest.
5. Understand The Relationship Between Trading Stocks And Tax
You must understand the tax regulations of your positions after you aim to trade stocks. These taxes that you'll pay after making a profit are called capital gain taxes. If you hold a stock for less than one year, you have to pay more capital gains and vice versa. The tax structure has been designed so that it can encourage long term investment.
On the other hand, you have to sell stocks for a profit, which increases your tax bill, and selling fewer decreases your tax bill. So that you can prevent people from taking advantage, consider the “wash sale rule.” The role of this rule is to delay the tax implications of profits or losses. In other words, after selling the stock for a loss but after a week you buy the same stocks, the loss you made doesn't give you tax benefits anymore and will be carried to a new position and can only be accountable after selling stock again.
6. Trade Your First Stock
After you add money to your brokerage account, you're ready to select the stock you can trade. So, you have to pick an order type, then place your order.
Once you have placed the order, check and ensure it's executed. If you choose market orders, your order should be executed immediately. But with limit orders, the order might not execute immediately. If not patient, try to move your limit price close to the bid price (if you are selling) or ask price (if you are buying).
7. Learn Stock Trading Strategies
For a beginner, you have to stick to simple buy or sell trades until you learn the ropes. After you have mastered the basics, you can add more advanced strategies. For example, some options will expose you to significant volatility, and you can quickly gain. But you can also quickly lose.
However, for advanced strategy, it's where you can borrow money from trading platforms and trade stocks through a process called trading on margin. It is risky to approach and suit experienced traders. Learning is essential until you're confident. With margin, you can grow your portfolio, which you can quickly land into debt.
8. Stock Trading Alternatives
Stock trading is only one way you can engage in the market. However, after you add ETF trading, that will only be scratch on the surface of investment methods. Considering mutual funds, these securities don't trade like ETFs or stocks, but alloy you invest in different sections.
Robo advisers, on the other hand, they are app-based types of investment services. They use algorithms where they help to answer basic questions and automate investment decisions. For beginners, these are suitable because they are easy to learn and understand. Also, they come from having low fees. However, they are recommended because you don't have to hire a traditional financial advisor who helps you make investment choices.