Maybe it’s because you’re a fan of the movies Wall Street and Rogue Trader.
Maybe you saw Bradley Cooper open his laptop and make a fortune overnight in the movie Limitless, and started getting ideas.
Perhaps you’re in love with the idea of working a few hours a day in your pajamas and making more money than everyone else. Or, you’re just anxious to get out of debt and are looking for a great side-hustle.
Whatever your reasons for trying online trading, you’ve got a lot to learn. But you knew that already, I’m sure. There’s tons of conflicting information out there loaded with industry jargon.
Don’t worry.
Here, we’re breaking down online trading for dummies. If you’ve always wanted someone to explain it to you like you’re five, keep reading.
The Difference Between Trading and Investing
No two traders are the same. There’s a big difference between being a day trader and a long-term investor, even though they both involve buying stocks.
Depending on your goals, there are several ways you can go about making money with online stocks/trading. Investors buy shares of public companies with the intent to hold those stocks for months or years. This is a great way to save for retirement or some other large purchase down the line.
A trader watches the market closely, looking for spikes and drops in value they can profit off of. A trader will usually make tens or hundreds of trades within a week. They’ll also need much more time each day to commit to learning and acting on trades.
Decide how often you want to trade. To open a day trading account with most online brokerage companies, you need initial capital of at least $25,000. And that’s just to keep your account open.
If you plan on making less than three trades per week, you’ll be able to trade with whatever cash you have on hand. FP Markets, for example, lets you start trading Forex with a deposit as small as $100USD.
Choosing What You’ll Trade
There are lots of options for what you can trade online.
These include…
1. Stock trading: buying, holding, and selling shares of companies on public stock exchanges.
2. Forex trading: buying and selling international currencies to make a profit on changes in value.
3. Options trading: trading contracts that give people the rights to buy or sell an asset at a set price if they would like to later.
4. Binary options trading: buying and selling options that try to predict the outcome of a specific market event (all-or-nothing options).
Keep in mind, what you decide to trade most often will dictate your schedule and trading strategy. For example, the Forex market is open nearly 24/7 while the US Stock Exchange has set hours based on Eastern Standard Time.
Know Your Goals and Have a Plan
Don’t even think about trying to buy and sell stock online without a trading plan.
Your trading plan is the personal code or business plan you stick to when emotions are high and the pressure’s on.
Many people get into selling stock online because it gives them the same rush as gambling. But making rash decisions based on emotion is the fastest way to go broke. Know your end goal for making this money, your limits, and your budget so you don’t get carried away.
Your trading strategy should include a plan for how to research or predict trades. You’ll need to get specific about things like how much you’re willing to lose in a trade, and how much to invest per trade. Most beginners shouldn’t invest more than 5% of your trading money on a single trade.
Let Technology Do the Grunt Work
There are plenty of apps, websites, and tools that can do busy work for you. This frees you up to do the larger strategic thinking.
Stock Screeners help you weed out thousands of available stocks on the market so you can focus on the most profitable.
You can set up different trading bots to execute trades on your behalf while you’re sleeping based on the parameters you give them. This can save you from losing money when a stock suddenly plummets (which happens often).
You can learn to do algorithmic trading. This just means making trade decisions based on price, volume, and timing as opposed to trends and hunches.
Be Patient, Stay Calm, and Get a Mentor
Learning to trade online is not a reliable way to make money immediately. But you don’t have to go to college and train for 30 years to get good at it either.
On average, it takes about six months to a year of trading every day to get comfortable with it and turn great profits. Expect to set aside time every day, and be proud of your incremental progress.
Many experts encourage beginners to start with a trading simulation for a few months. That way, you can feel what it’s like to make trading decisions without ever losing real money.
When you do start trading real cash, keep a journal for the first year. Write down what trades you made and why followed by how they worked out. This is a great way to track your progress and stick to your trading plan.
Get yourself a good mentor. Several, even.
You’ve probably noticed there are hundreds of great ways to learn about trading and stock options. Keep learning. Most of all, stay calm and be patient.
Online Trading for Dummies and Other Tips
Hopefully, you found this online trading for dummies post helpful and easy to understand.
Remember, stick to your trading strategy. Keep your end goal in mind, know your limits, and let technology help you.
For more great “for dummies” posts like this, check out our blog.
Best of luck.
