The global equities markets are opportune environments for active traders and investors alike. Whether you're building a retirement portfolio or pursuing profitability from speculative endeavours, online stock trading could be a viable way of achieving any number of financial objectives.
Fortunately for aspiring stock traders, getting started in the markets isn't all too difficult. In fact, it is possible to begin your journey into the marketplace by completing five basic steps:
- Decide if trading stocks online is right for you
- Acquire a preliminary education
- Choose an online brokerage service
- Conduct market research
- Build a comprehensive trading plan
While this list of tasks may appear elementary, a good deal of work is needed to finish the progression. After completing each of these essential steps, you'll be well equipped to quickly and efficiently engage the online world of equities trading.
Step #1: Decide If Trading Stocks Online Is Right For You
The evolution of technology has greatly reduced the barriers of entry for stock traders. Remote connectivity options and a vast array of tradable instruments have massively enhanced the popularity of online stock trading.
As a result, the global stock trade has grown exponentially. For the year end 2018, the aggregate capitalisation of the world's developed and emerging equities markets measured US$40.6 trillion. Below is the regional dispersion of this staggering market cap:
- The United States (54.4%)
- Eurozone except United Kingdom (14.8%)
- Asia except Japan (12.5%)
- Japan (7.6%)
- United Kingdom (5.2%)
- Canada (2.9%)
- Latin America (1.4%)
- Other (1.1%)
Over the last several decades, the online availability of exchange-based stock trading has attracted a tremendous number of novice and professional traders. However, the decision to join their ranks falls upon you. In order to determine whether or not trading stocks is right for your unique situation, a few introductory questions must be honestly answered:
- What are my financial goals? Your market-related goals and objectives will largely determine if you gravitate towards being a short-term trader or long-term investor.
- What is my risk tolerance? Periodic financial losses are an unavoidable part of engaging the financial markets. If you can't take a loss, it may be better to find another pastime.
- How does online stock trading complement my available resources? Risk capital, time and personal acuity are all inputs necessary for potentially successful stock trading. In the event one or all are lacking, addition preparations may be needed before jumping into the market.
Upon answering these three questions, it should be apparent if it's wise to get involved in online stock trading. If not, you may find other asset classes such as currencies, commodities or real estate more suitable.
Step #2 Acquire A Basic Education
As with all things trade-related, education is a big part of achieving sustainable success. It's crucial to understand the different elements of a market and the actual trading mechanisms to avoid making expensive mistakes. A basic education in online stock trading should address the essential components of market behaviour, order placement, trade execution, and the rules and regulations governing active trade.
One of the benefits of trading in the digital environment is the availability of free online educational tools. Complimentary webinars, expert blogs and industry-specific literature are all at your fingertips. In addition, trading courses or academies are at the ready to boost your trading IQ on a pay-for-play basis.
Step #3: Choose An Online Brokerage Service
Upon gaining a basic working-knowledge of how the stock trade functions, it will be necessary to secure the services of an online broker. Brokerage firms come in all shapes and sizes, from multinational conglomerates to local companies.
Regardless of the firm, most brokers may be classified as one of two types:
- Full-Service: Full-service brokers furnish clients with 1-on-1 attention, professional guidance and money management options. Due to the enhanced personal attention and resources, they typically charge higher fees.
- Discount: Discount brokers offer traders a reduced set of features and streamlined service suite. Commissions and fees are reduced as clients are encouraged to operate in a self-directed capacity.
The choice of whether to go with a full-service or discount broker depends greatly upon your resources, trading style and level of experience. No matter which type of brokerage firm you choose, make sure it's reputable, competent and in good legal standing.
Step #4: Conduct Market Research
Market research is an indispensable part of successfully buying and selling stocks. A wide-variety of factors influence the value of equities. Understanding as many as possible can open the doors to opportunities both obvious and obscure.
While there are numerous corporate stocks to invest in, there are two primary types of analysis:
- Fundamental: Fundamental analysis is the most traditional form of stock picking. It is the study of balance sheets and income statements, and it includes ratio analysis.
- Technical: The study of a security's price action is known as technical analysis. Indicators, tools and patterns are applied to historical price movements in an attempt to predict future tendencies.
Learning the operational background of a company and examining the price movements of its stock can be helpful in the crafting of trading decisions. Also, consumer trends, geopolitical affairs and aggregate market volatility are important factors to keep in mind when scrutinising a stock offering.
Step #5: Develop A Comprehensive Trading Plan
Developing and implementing a comprehensive trading plan is an indispensable part of achieving potential long-run profitability. In order to optimise performance, it is imperative to properly align your available resources to your trade-related goals. This is critical to making informed, disciplined and consistent decisions.
Trading plans are as diverse as the day is long. Nonetheless, a rock-solid plan needs to address the following key elements of trade:
- Identify potential trading opportunities in the market
- Define how new positions will be opened, managed and closed
- Put forth concrete parameters governing money management
A comprehensive trading plan provides a strategic framework for buying and selling stocks. Through adhering to its tenets, performance becomes statistically verifiable and the element of "luck" may be removed from the equation.
Beginning any new discipline on the right foot is essential for success. For online stock trading, a critical first step is being sure that it's suitable for your resources, talents and financial goals. After that, acquiring a market education, selecting a broker and building a viable trading plan are largely functions of attentiveness as well as dedication.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…