You have finally decided that your personal finances need a little order, so you start looking at options. Then, you discover online trading as an effective way to make your money generate a bit of profit. Trading has always been a popular means of investing, but now people have the alternative to use online brokerages. Not so long ago, it took an expert financial advisor and a sizeable disposable income to even get into trading. Online brokers have made trading available to just about anyone what with the low minimum deposits that most of them ask for. Nonetheless, online trading carries a level of risk as with any other investment. So how does a first-time trader navigate the common pitfalls?
Pick an Investment
Before finding an online broker and depositing your money, know which type of instruments you want to trade. Stocks are the most popular options because they are uncomplicated. A trader only has to find the right publicly traded company and buy shares. However, online brokerages like CMC Markets have other instruments such as currency pairs, futures, and ETFs. Therefore, learn carefully about various investments to know which one suits your needs. Note that the risks associated with an investment vary from one asset to the next. For instance, the price of a company’s shares will fluctuate differently than that of gold of the U.S dollar. As a result, a beginner should invest in thorough research.
Find a Broker
Online trading is filled with numerous service providers, so it may be a bit confusing trying to find one. Firstly, narrow down the choices to brokers who offer the products you intend to trade in. Not all providers carry CFDs or mutual funds or forex. If a first-timer wants to trade currency pairs, he/she must find out how many options a particular broker provides because that too will matter. The credibility of an online broker is the next thing to look at. Some merchants on the web don’t offer legitimate services, which increases the risk of losing your money. Verify the registration number of a broker and ensure that the authorization is by a legal financial regulator like FCA or CySEC. Check their availability also because some brokers don’t trade 24/7. The minimum deposit is the other element that should influence your pick. Ensure that you select a broker you can afford. The customer service offered to traders should also dictate your decision.
Know how the Platform Works
The whole concept of online trading rests on the use of trading software. Although the main idea may be the same, platforms are constructed differently. When you choose an online broker, find out the software they use for trading and familiarize yourself with it. Never use a platform that you have never used before. Fortunately, most brokers offer demo accounts where traders can learn about a platform before putting in real money. Know where all the primary functions are like the buttons to hit when executing a trade. Find out where the market charts are located if any. If the trading platform has a mobile version, know how that works as well.
Have a Plan
Regardless of how good your trading platform is or the performance of your chosen asset, without a plan, you risk everything. Your money deserves the best care, and that begins with knowing how to approach your trading. For one, understand your risk tolerance. Don’t use up all your savings and leave nothing left for a rainy day. Remember that you can just as easily lose money as you can turn a profit. For example, you can set a 3:1 reward/risk ratio, meaning that even when you lose one time on a trade, your finances won’t suffer. A concrete investment plan will tell you if it’s time to get out or keep going. It also keeps you objective, which is usually difficult when trading. Emotional decisions about investments can get you into a financial mess. If your plan says that you have to sell a certain stock after a given period, do it if the situation doesn’t improve; no matter how you feel about the company.
Online trading has made investments accessible to regular traders. With the services of online brokers, anyone can try his/her in the markets. However, a novice trader should know the fundamentals of online trading and prepare adequately before investing money.