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Online stock trading allows investors to buy and sell stocks of choice on their own. This is a departure from the traditional approach whereby investors need to visit stockbroker’s office and register with them. The stockbroker on the other hand would then help the investor to place order based on his professional advice or client’s instruction. Today, with online trading platform, investors can trade successfully without leaving the comfort of their house. If you like to start your own online stock trading, it is not difficult. You just need to follow some steps.

How to Start Online Stock Trading

Open online brokerage account: Just the same way that investors needed to register an account with stockbroker under the traditional approach, you will need to open online brokerage account. But in this case, you may not need to move an inch before you can get this done. Just connect to the internet and conduct a search for online stock brokers. It is better you widen your search so that you can compare the services of several brokers before you decide on a particular one. When you are comparing brokers, below are some of the factors you will need to consider:

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• Fee: When you open an online brokerage account, you will be charged a brokerage fee on your trades. Also there is ongoing fee which you will need to be paying monthly, quarterly or annually. Brokerage fee may appear small, but if you trade regularly, the amount can become very substantial. It can erode the little gains you make on your transactions if you need to pay fee each time you buy or sell your stocks. Although fee should not just be the only determining factor for selecting a broker, you should ensure that the broker you choose will not charge you a fee that is too high. You may not know if the fee is high except you compare it with what other brokers charge. Some providers may not even charge the ongoing fee.
• Minimum balance: Each broker has their target clients. If you don’t have much money to invest, you don’t need to open brokerage account with brokers that target high net worth individuals. You can easily know the class of clients that a broker is targeting by looking at the minimum balance they expect their clients to have in their account.
• Trading platform: Have a look at the platform that each broker you are researching uses for trading. How advanced is it? Will it be easy for you to use? Do they offer premium services?
• Available markets/products: What type of products do they offer? Do they offer other products apart from stocks such as derivatives, forex, bonds and treasury bills? Can you trade on international stocks or you are restricted to local stocks? Investing in international stocks will allow you to diversify. If stocks in America are not performing, you will be able to switch to another continent where markets seem to be stable or growing.
• Simplicity: Each trading platform comes with different tools. Are the tool very simple to use without the need of enrolling in a course? It should be simple enough so that you can use it effortlessly without depending on another person.
• Regular updates: Stock prices do fluctuate from time to time. News and company’s results are examples of factors that usually drive stock prices. If you want to be successful in stock trading, you need to have access to up to date news and information about the happening in the stock market. Savvy stock traders understand the need to take position at the right time. If you don’t have access to news on company’s earnings and other important issues, you may be entering market when other people have made all the money.
• Professional opinions: Who are the management team of the stock brokerage firms? What type of qualifications do they possess? What about their years of experience? Can you depend on them for professional advice?
• Ease of placing order: How easy for you to place orders? You should be able to place order both online and on phone. At times, you may be on the go. And you hear a news that you need to work upon. If you can place order on phone, you will be able to take advantage of breaking news that can impact stock prices.
• Trading flexibility: Stock trading is all about risk taking. At times, you get it right. At other times, you get it wrong. Supposing you get it wrong, you should be able to cut your loss. Ability to limit order will ensure that your fund is not eroded in case you invested wrongly.
• Reporting tools: You should be able to generate reports on the stocks you want to invest in. Such reports may include income earnings reports and price earnings ratios. Also, you should be able to generate report on your own account.
• Margin loans: Some investors like to borrow money from their brokers for trading purpose. This is called margin loan. Find out if your broker offers such service.
• Customer service: The importance of good customer service cannot be overemphasized. Before you commit your funds, you should find out what people are saying about the online stockbroker. Read different customer reviews about the brokerage firm. You can even test the rapidity of their response time by placing a telephone call to them. You can also send a mail or engage them in an online chat to see how long it will take them to respond to you.
• Online resources: Some online stock trading platform have robust online resources such as articles and webinars. This can help you make most of your trading activities.
• Safety of funds: It is not enough to trade, it is important that your money is safe. You should be able to withdraw your money any time you wish. Online broking firms that have been around for a long time may be more reliable than new ones. Ensure that the operation of the online broker from the first step of the registration, through the deposit and all the way to the withdrawal, is in compliance with strict global regulation.

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Open Demo Account: Online stock trading involves high element of risk. Just as in the natural, you should always take baby steps before walking and learn how to walk before running. Online demo account allows beginners to learn the ropes before diving into the deep end. When using a demo account, you will be trading with the money that is virtual. But you will be able to access the markets and practice trading under real market conditions. You can experiment with different trading strategies and put them to the test. You can learn how to turn market opportunities into profit. It will also help you become familiar with the trading platform. In order to activate your demo account you will be asked to submit a valid email address.

Have a plan: You need to develop a plan that will work for you. You can’t afford to do what other people are doing. If you need to follow the crowd, you must have your genuine reason for doing so. Your plan will include the following:

• Frequency of trading: How often do you want to be trading? The time you have available for trading my influence your decision on this.
• Local or international: You may like to start with local stocks and later expand your trading to international stocks. But this is the decision you need to make from onset. If you intend to trade international stocks, you must ensure that the online brokerage firm you are choosing offer such products.
• Stock investing versus stock trading: There is difference between stock investing and stock trading. Although stock trading and investing both involve seeking to make gain in the stock market, they pursue that goal in different ways. Stock trading is about buying and selling stocks for short-term profit, with a focus on share prices. Traders believe in buying stocks at a lower price and selling at a higher price. On the other hand, investing is about buying and holding stocks for long-term gains. Investors like reinvesting profits and dividends on stocks into additional stock.

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Research stocks: Before you invest into any stock, you should do your homework properly. Your investing plan will influence whether you should carry out fundamental analysis or technically analysis. Stock investors will most likely depend on fundamental analysis while the stock traders may approach the market through technical analysis. Fundamental analysis aims to find the intrinsic value of the stock by looking at the basic economic factors, the fundamentals, which would impact its value. On the contrary, technical analysis uses past price movements to predict its future price movements. Trends and patterns play a major role, rather than the intrinsic value.

Start with little amount: Don’t start trading with a large amount. It is better to start small. By the time you gain experience, you can then increase your capital. In fact, it is suggested that you shouldn’t invest money that you can’t afford to lose.

Buy low: Whether you are investor or trader, you need to enter the market at the right time. Don’t buy stock when the price is at the peak. Though if you have carried out your fundamental analysis very well, you may find out that a stock selling at its peak price may still be underpriced. Such can still be regarded as a good buy.

Master your emotion: The two types of emotion you need to master are greed and fear. Fear will not allow you to enter market when you should. Greed will not allow you to sell a stock when you should. You will like to make the highest gain possible. In so doing, you may end up losing the entire gain back to the market if the price falls.

Enhance your skills: Learning is continuous. You don’t graduate from the school of life. You need to continue to enhance your skills through reading financial news, company announcements, market activities and paid courses.

Pros and Cons of Online Stock Trading

Find below the advantages of online stock trading. Some of these advantages are more pronounced if you compare online stock trading with traditional stock trading.

Pros

• Online Platform: You can access your account online, anywhere and anytime.
• Quick Execution: At a click of button, you can place and execute orders.
• Control: You have control over your account. You don’t need to depend on your brokers.
• Convenience: You don’t need to go through the hustling and bustling of the city to go to your broker. You can conclude transactions from the comfort of your house.
• Free independent research: Some online brokerage firms have a research department. They carry out independent research on stocks and give objectives recommendations. All these can help you make informed decision.
• Lower fees: Unlike when the online trading platform was first introduced, the fees you need pay now has reduced drastically. Even with the increased competition, each provider needs to keep fee low so as to attract and retain clients.
• Online real time: Everything is online real time. The stock prices are updated regularly. You don’t need to wait till the end of the trading day to know the stock price.
• Access to local and International markets: We now live in a global village. You don’t need to live in a particular country before you can trade the stocks of companies situated in the country. You can easily move your money around across borders.

Read Also: How to Identify Undervalued Stocks

Cons

Find below few disadvantages of online stock trading:

• Lack of personal relationship: Most of the time, you are relating with just the online platform through your computer or laptop. Your online platform provider may not know you at all.
• Internet required: You need reliable internet access. Without internet, you will not be able to log in to your account not to talk about trading. Besides, the internet have to be reliable so that you can be sure your order will go through immediately you hit submit. In fact, those people that trade in forex will tell you how important a minute is to them.
• Computer errors: If you are typing, it is easy to mistakenly type a wrong figure. For example, you may mistakenly hit your keyboard twice thereby typing 100 instead of 10. If you don’t review your order very well before you submit, you may soon realize that you have invested all the money in your account in just one stock.
• Risk: The risk is high with online stock trading. First, you may not have enough knowledge of how online stock trading works before you start trading with your money. The fact that you make profits in your demo account does not guarantee success in real life. Second, because of the convenience involved in trading, there is temptation to trade when you are not supposed to trade. This can eventually lead to a loss.

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