If you are looking for something more advanced than stock investing, then you should consider stock trading! While it is similar to investing in stocks, stock trading is a form of investing that focuses on short-term gains rather than long-term goals. Contrast this with investing, which aims to compound your value over time by holding onto assets for years. Instead, traders tend to hold their positions for an hour to a week – sometimes on the longer end, a few months.
Here, we explore what exactly stock trading is, and how to start trading online. So be sure to keep on reading to learn more.
What is stock trading?
To put it simply, stock trading is when you are either buying or selling shares to try and take advantage of the fluctuations in price. Traders generally spend a lot of time watching the short-term price changes of these stocks. Most traders tend to go for the buy low sell high approach in order to do well in trading.
This type of short-term approach is one of the main differences between trading and investing. While stock trading brings a lot of advantages and opportunities with it, it also carries a higher level of risk. You must remember that a company’s fortune and stock price and just as easily rise and fall without any warning whatsoever.
For those looking to learn more about stock trading, you can find plenty of tutorials and videos online. Other online brokerages have also made it easy by providing lessons for you to check out. Always be sure to do your research thoroughly before entering the world of stock trading.
Types of stock trading
There are two main types of stock trading that you need to know about:
Day trading: This is where to trade and change positions so often that it is like playing hot potato with stocks. As its name suggests, traders tend to buy and sell stocks within a single trading day. Additionally, most day traders do not care that much about the companies they are investing in. Their only concern is how quickly they can find new opportunities.
Active trading: This is where an investor places around 10 trades or more per month. Most of these traders tend to use certain strategies that often rely on timing the market. They usually try to find new opportunities presented by the fluctuating market prices.
How to trade stocks
If you want to start trading stocks, but have no idea how here are some of the things that you should consider before jumping in and starting. Try to keep things simple and invest in a mix of assets so that you can lower your risk and do well in the long run.
Open a trading account
To get started with stock trading, you will have to open a trading account. This is usually done through a broker. As there are so many brokers available, each with their own specialities, it is important that you do your research and find one that is reputable and can support your endeavour. Be sure to compare factors such as fees and commissions, customer service, services and features, and reviews from other traders before making a commitment.
Other things you may want to think about include their educational resources, how accessible they are, and what kind of stock analysis tools they offer. Most beginner traders tend to go for a broker thathas a lot of offerings while also good support when things get tough.
Set a budget
Before you get started with trading, you will have to set a budget and stick to it. If you are someone that prefers shiny new companies or investments, make sure to allocate up to 1 – 2% of your budget towards these assets. Experts also suggest that it is best practice that you diversify your assets as well. This way, you can lower your risk in case the market moves in an unfavourable direction. You also only want to trade money that you can afford to lose – do not put all your eggs in one basket! Moreover, be sure to not use money that is used to pay short-term expenses like mortgage payments or emergencies.
Learn basic stock analysis
For the most part, trading tends to rely on technical analysis. This is where traders make their decisions based on historical market data and stock prices. They use this rather than fundamental analysis, as that involves evaluating a company to find its true worth. Rather, the main aim of technical analysis is to evaluate price movements so that traders may be able to predict future price movements.
While it can be argued that the two types of stock analysis take an opposite approach to each other, it is still wise to combine them together. This way, it can give traders a broader understanding of how the market functions. Therefore, they can use this to make better-informed decisions whilst trading.
Practice with a simulator
While you may be tempted to immediately jump and start trading, this may not be a good idea. Instead, you should try practising with a stock market simulator or a paper trading account. This way, you can practice your strategies and see how the stock market may perform in real time without risking any of your funds. Virtual trading like this allows you to test and improve your trading skills in an incredibly low-stakes environment. You can also use these simulators to build up your track record before you start trading for real.
Plan your first trade
Once you have enough confidence to start trading using real money, it is time to think of a proper trading strategy and plan. This way, it will help you to maintain discipline and consistency whilst trading. You will be less likely to panic or revenge trade when you see things not happening your way.
Most good trading plans tend to outline your entry and exit points. These points will depend on your skill and experience level, your risk tolerance, and your overall goals of trading. Keep in mind that each position that you hold will have its own factors that you need to consider. You have to remember that in order to pay attention to the stock in case the market abruptly changes.