A quick guide to trading online for newbies. What is it? An example trade in Apple stock, the risks and why you might consider trying it.
What is online trading?
Online trading is using the internet to buy and sell securities on financial markets. Almost every kind of financial market is available to trade online. That includes stocks, bonds, currencies, commodities, cryptocurrencies and stock indices like the S&P 500.
When you think of trading you might think of people shouting and making odd hand gestures at each other! While trading was traditionally conducted on physical exchanges, developments in technology have led to a rise in the popularity of online trading.
Online trading has made the financial markets increasingly accessible, allowing investors to trade a wide range of instruments 24 hours per day using software called an online trading platform to place the trades.
An example online trade example:
If you buy Apple stock for $100 and the price goes UP to $120, your trade is profitable by $20. If those same Apple stock that you bought at $100 dollars falls to $80, your trade would make a loss of $20. When placing a real trade, you will also need to make note any applicable fees and commission.
Before online trading was available (the olden days!) each trade would need multiple phone calls to be completed. Fortunately, all this infrastructure is mostly computerised in modern markets so it can all be done with the click of a button. All you need to do is decide what prices to buy and sell at and your online bank does the rest.
Is trading online risky?
Trading in financial markets means taking risk so it is important to familiarise yourself with the risks as well as the opportunities. It is generally accepted that around eight out of ten traders lose money. That might sound off-putting, but they are very similar odds to the chances of starting a successful business and success comes with high rewards. This makes sense because both trading and starting a business involve working for yourself and taking a risk.
Why try it?
The motivations for trading online are typically as follows:
1. Being your own boss - nobody tells you what to trade, the decisions are all yours
2. Low start-up costs - you just need a smartphone or laptop to trade
- Flexible working hours – trading is available in many markets 24 hours a day
- Easily monitor your success - your profit & loss statement is updated in real time.
How to start trading
Online trading is done through an online account. This online trading account is opened with an online bank that offers trading brokerage services. These companies are specifically licensed to buy and sell financial instruments for you and charge you a fee to do so. The account can be opened easily by filling in an online application form and is available to individuals and businesses.