Online trading can help you earn money from the comfort of your own home but with research and careful strategizing.
1-Perform a technical analysis. Technical analysis is an attempt to understand market psychology or, in other words, what investors as a whole feel about a company as reflected in the stock price. Technical analysis makes use of moving averages to track security prices. Moving averages measure the average price of the security over a set of period of time. This helps traders more easily identify trends.
2-Understand the difference between a trader and an investor. An investor seeks to find a company with a competitive advantage in the market place that will provide sales and earning growth over a long period. A trader seeks to find companies with an identifiable price trend that can be exploited in the short-term.
3-Learn about different orders traders make. Orders are what traders use to specify the trades that they would like their brokers to make for them. There are numerous different types of orders that a trader can make. For example, the simplest type of order is a market order, which purchases or sells a set number of shares of a security at the prevailing market price. In contrast, a limit order buys or sells a security when its price reaches a certain point.
For example, placing a buy limit order on a security would instruct the broker to only purchase the security if the price fell to a certain level. This allows a trader to specify the maximum amount he or she would be willing to pay for the security.
In this way, a limit order guarantees the price the trader will pay or be paid, but not that the trade will occur.
Similarly, a stop order instructs the broker to buy or sell a security if the price rises above or falls below a certain point. However, the price that the stop order will be filled at is not guaranteed (it is the current market price).
There is also a combination of stop and limit orders called a stop-limit order. When the price of the security passes a certain threshold, this order specifies that the order become a limit order rather than a market order (as it does in a regular stop order).
4-Understand short selling. Short selling is when a trader sells shares of security that they do not yet own or have borrowed. Short selling is typically done with the hope that the market price of the security will fall, which would result in the trader having the ability to purchase the security shares for a lower price than they sold them for in the short sale. Short selling can be used to make a profit or hedge against risk, however it is very risky. Short selling should only be done by experienced traders who understand the market thoroughly.
For example, imagine that you believe that a stock currently trading at $100 per share is going to decrease in value in the coming weeks. You borrow 10 shares and sell them at the current market price. You are now “short,” as you have sold shares that you didn’t own and will eventually have to return them to the lender.
In a few weeks, the price of the stock has indeed fallen to $90 per share. You purchase your 10 shares back at $90 and return them to the lender. This means that you sold shares, that you didn’t have, for $1,000 total and have now replaced them for $900, netting yourself a $100 profit.
5-Choosing a Brokerage Partner. Don’t rely on a tip from a friend or neighbor. The right brokerage service can make the difference between financial success and failure. Before choosing an online brokerage, ask about details like pricing and the available investment choices. Find out about the customer service they provide and whether or not they offer resources for education and research. Finally, find out about their security practices.
6-Practice with an online stock simulator. An online stock simulator that simulates online trading. Using these allows you to practice your skills with zero risk. Many come with tutorials and forums to discuss investing strategies.
However, keep in mind that simulators don’t reflect the real emotions of trading and consequently are best used to test theoretical trading systems. Real profits are much more difficult to achieve than imaginary profits.
7-Diversify your portfolio.Diversifying your trading portfolio means choosing different kinds of securities in order to spread out your risk. Also, invest in different kinds of businesses. Losses in one industry can be offset by gains in another.
Consider investing in an electronically traded index fund (ETF). These are a good way to diversify because they hold many stocks, and they can be traded like regular stocks on the market.
Note again that trading is separate from investing. Investing involves holding the same securities for long periods of time to build value slowly. Trading, also known as speculation, relies on quick trades and exposes the trader to more risk.
Only trade with what you can afford to lose. Once you start making profits from your stocks, you can reinvest the profits. This process helps your portfolio to grow exponentially. You can also trade with borrowed money using a margin account, allowing you to potentially magnify your returns. However, this incurs equally magnified risk and may not be for most traders, even those with high risk tolerances.