Connect with us

Business

5 steps you should take before you start trading online

Take these steps for an easier start in online trading.

forex
Image: Pixabay

Online trading is one of the fastest-growing industries on the internet. There are today millions of people taking advantage of the opportunities that online trading has to offer.

But online trading is not as easy as many novice traders believe. To succeed in it you need quite a bit of knowledge, education and even luck. 

In this article, we will look at five steps that you should take before starting with online trading. These steps will help you start on the right foot and ease into your trading activity.

Choose a market

The first step is choosing a trading market. You can trade shares, currencies (Forex), Cryptocurrencies, commodities, EFTs, and indices.

It’s best if your choice of a market is aligned with your interests. For example, if you are happy following the stock market news on Marketwatch.com or the London Stock Exchange website, then the stock market may be the best choice for you. If macroeconomics is your passion, then currency trading may be a better choice.

Decide between trading the real asset or its derivative

The next step is choosing whether to trade the actual asset or its derivative. A derivative is a financial security that derives its value from an underlying asset (a share, a currency pair or a commodity) An excellent example of a derivative is a Contract for Difference (CFD).

Most brokers provide CFDs for stocks, cryptocurrencies, currencies, indices, ETFs, and commodities. Take for example the Capex CFD trading service. It offers CFDs on more than 50 currency pairs, thousands of shares and all major commodities and indices.

CFDs enable traders to speculate on the price of the underlying asset without owning it. For example, if you are trading a stock CFD, you are speculating on the prices of the stock without actually owning it. 

There are advantages and disadvantages for trading CFDs over the underlying asset. It is really up to you to decide which path to take. 

Invest in Education

You could start trading without knowing anything about the market, but then you are simply gambling your money away. If you want to make the best out of your trading experience and make sure your decisions are informed you have to invest in proper education and a trading strategy.

The good news is that online brokers make their best to provide you with great education for free. You can find an abundance of free online seminars, tutorials, guides and videos, all aimed at making you more knowledgeable about the market of your choice. 

You can also get free charts, analysis articles and news feeds from your online broker, so you can stay informed and on top of your trading activity.

If you want to take your education one step further you can always take an offline course that may be digging a little bit deeper into the financial world.

It can also be a great call to practice your new-found skills at a demo account before you start trading with real money. That way you can tell if you are ready without actually risking your money.

Choose an online broker

Once you get your education in place, it is time to move forward to one of the most important decisions you will take in your trading endeavor – choosing an online broker.

There are many parameters to consider when choosing an online broker but the first and most important one is the license. A good broker should be licensed by one of the prominent regulatory bodies which include the FCA, ASIC, FSB, and CySEC. 

Other parameters to consider are security and privacy measures, trading platforms,  variety of underlying assets, minimum deposit, leverage, commissions or spreads and education, and analysis tools.

Develop a money management strategy

You should never start trading before you establish a money management strategy. Your money management strategy should define your risk/reward ratio. A risk/reward ratio refers to the amount of risk you are willing to take for a given reward. If you are a complete beginner, it is vital that you start small. You can always add capital as you get confident in your trading skills. 

You have now taken the first steps to become an online trader. But just because you have taken these five steps, it doesn’t mean that you are now an expert trader. You should never stop investing in your knowledge and always try and improve your trading strategy and tactics.

CFDs are highly leveraged instruments. CFD trading involves high risk and your potential losses when trading CFDs may be substantial.

Have any thoughts on this? Let us know down below in the comments or carry the discussion over to our Twitter or Facebook.

Editors’ Recommendations:

Comments
Advertisement

More in Business