Online trading is going to work the same way as going through a stock broker. The stock broker normally offers you advice on the stocks to buy, but it is your final word that will make the buy. The stock broker then puts the order in. There are some major differences between a stock broker and online trading that will be looked at below in our basics of online trading.
- Online trading is fully in your control. You decide what stocks to buy, when to buy, and when to sell. You also decide how much to sell. This doesn’t change from the stock broker.
- In online trading you are going to pick the stocks without input from a stock broker. Depending on the type of programme you use, you can ask questions and learn how to trade in the stock market before buying. In this way you don’t have the expert advice at your door, but you do have access to it.
- With online trading programmes you are able to do the research on your own. You can learn the strengths and weaknesses of stocks. You are also able to look at the news, read what the experts are saying, and study the charts of various stocks. With a stock broker you normally leave this control to them in guiding you towards the right type of stock.
In online trading you need to have a well rounded stock portfolio just like you would through a stock brokerage company. In other words, you should have more than one stock and these stocks should be from different industries.
For example you wouldn’t want two oil stocks. When one is doing well the other will be doing poorly. This is because of the industry. It is better to have an oil stock, train stock, food stock, etc. to make sure you have a well rounded portfolio. By having the different industries you may see a few down one day while the next they are up, but this earns you more than having two stocks in the same industry. If you have two oils stocks and one is at 110 pounds and the other at 111 pounds, you aren’t making anything if the 111 pounds goes down to 101 while the other stock goes up by 10 pounds. You are breaking even. So don’t get caught in that trap when online trading.
There are online trading programmes like eTrade or Think or Swim that offer you training as well. In this online trading programme you can fool with paper money until you are prepared to actually buy a stock. It is a learning tool offered. This is the best way to start online trading. You get to see real market quotes, but none of the risk until you are ready.
In the online trading world you do have to send in a bit of money to get started. Most companies take cheques or money transfers. There will still be a commission for the sale of a stock, but it is significantly lower than a stock broker.
