How to Trade Stocks Online?
Trading is not doing online shopping where prices are set. Because the investments are priced in real time with an active bidding between buyers and sellers the price can change quite dramatically in short time. There are 5 main ways to buy or sell online financial instruments:
Market orders: this is the most popular type of order. In this case you ask your broker to sell your shares at the best price or to buy shares at the current price. Nowadays orders are executed almost immediately and this means commissions are also lower.
Limit orders: With a limit order all you doing is telling your broker the price you are keen to take if you are selling stocks and the price you are willing to pay if you are buying. The order will than execute if your price is reached. Let’s imagine you have 100 shares of Nike which are trading at $50 a share. The estimation is that they will fall to $30 a share. You could sell the stock with a market order but you are not sure so you might want to set a limit order to your broker that will sell the stock if it fell to $45 a share. Limit orders are filled only at the price that you decide. If the price continue to fall the broker might only be able to sell some of the shares or none at the price you have set.
Stop market orders: those are very similar to stop market orders and let you decide a price you want to buy or sell shares at. Once the price will hit the target there will be a market order triggered and it will be executed immediately.
Let’s imagine you have have 100 shares of Nike which are at $50 a share. In this case you enter a stop market order for £45. The following morning the shares have gone down to $25. This time all your stock would have been sold but your online broker will sell the. shares at whatever price was the moment your order converted into a market order which would be in this case $25.
Stop limit orders: Stop limit orders can be customised. Firstly you can set the activation price. When the price will hit that amount the order will turn into a limit order with the limit price that you have decided.
Let’s say that BT company is trading for $50 a share and you enter a stop limit order with an activation price of $45 and a limit price of $35. In the morning you wake up and see that the stock has plunged to $25. In this case the broker would have turned your order into a limit order after it went below $45. When the stock will fell to $35, the broker would try to fill orders at that price if possible. Differently from the stop market order you would not sell the shares when they fell as low as $25.
Trailing stops: limit orders are either executed or they will expire. Trailing stop orders will help you with this problem as they will tell your broker to sell a stock if it falls by a certain amount or percentage.
Those are really good when you are buying and selling individual stocks. Before buying a stock you will have an idea of how far you will let it go down before closing the deal and cut your losses. Some experts do suggest that you should not let a stock fall more than 10% below the price you have paid. If you agree with this view than you should place a trailing stop.
Depending on the broker you might get charged extra for limit orders so make sure you check the commission fees carefully to avoid bad surprises. Some brokers will not even offer limit orders but the majority do.
Generally it is very important that new investors that are keen to trade stocks online will have access to a lot of resources and education. Online trading is like learning to ski and trial and error are necessary before master it. The good thing with investing is that everyday you will improve your skills and also that strategies that were used 20 years ago are still in use today. Take a look below as we have summarised the steps you ned to get started.
How do I get started with Trading Stocks Online?
Finding a very good online stock broker is really important. The competition is huge and you will need to spend time firstly to understand if the commercial offers is good for you and than also to ensure you familiarise with their trading platforms and tools. We have a full comparison of online brokers so take a look here.
2. Read books
We would definitely suggest books to expensive classes, seminars and other educational material that is sold on the internet. They cost less and are normally made by true trading experts.
3. Read articles
Articles are also a great resource to improve your trading education. On TopTradingPlatforms.co.uk we have a complete range of articles broken down into different categories. Everything is free so do take advantage and have a good read!
4. Find a mentor
A mentor doesn’t have to be a top expert but can also be a family member, a co-worker a professor or someone that has a good understanding of the stock market. A mentor will be answering your questions and provide help when you most need it. All the successful traders have had mentors especially in the early days. Forums can also be a good idea in order to ask questions and get answers. It is however important that you be careful in regards to the advices you will receive. The majority of the people in forums are not professionals traders, some of them are not even traders so be careful.
5. Study the greats
Make sure you always follow the greatest investors and study how they have done it. They will provide perspective and inspiration. The Greats traders are people like Warren Buffett, Jesse Livermore, George Soros, Benjamin Graham, Peter Lynch, John Templeton and Paul Tudor Jones, among others.
6. Read and follow the market
There are great news sites out there like Yahoo Finance and Google Finance that will give you the basic information you need as an investor. If you are looking for more details than why not reading Wall Street Journal, Bloomberg and Financial Times. Do monitor headlines and make sure you are update with the trends in the niche you are trading. TV is also a good place to stay informed: even 15 minutes a day on CNBC will give a good understanding of what it is going on. Do not exaggerate tough with the TV as lots of shows are just a distraction and will not help with their recommendations.
7. Consider paid subscriptions
It is fine to pay for good research and analysis that can result both educational and useful. There are many paid services on the web and the challenge if finding the right one for you. Make sure you stay away from those ‘independent traders’ that are claiming to have a great return and they will ‘teach’ you how to do it. 99% of those are scam and come with high prices.
8. Go to seminars, take classes
Seminars are good to give you good insights into the overall market and different investment types. Not all seminars has to be paid as some very good ones are available for free. Similarly to paid subscriptions be careful with classes and courses as there are some that are very expensive (over £1,000) and they do deliver false promises. Their sales funnels will suck you in and take away your money.
9. Buy your first stock or practice trading through a simulator
The good thing about online brokers is that you can open a demo account and you can test your strategy without spending too much money. Even when you start trading with real money it is suggested that you do that very carefully and do not burn too much capital until you are sure of what you are doing.
10. Passive Index and follow Warren Buffett
As Warren Buffett used to say for the majority trading will be a losing proposition. The greatest investor of all times recommends individual investors simply passive index instead of trying to beat the market trading by yourself.