Trading Online has become increasingly popular as more and more people become aware of how quick and easy it can be to get started when compared to more traditional forms of investing. Before, if you wanted to invest in stocks, forex, commodities or any other asset class, you would have had to visit or call a brokerage firm and tell them what you wanted to buy or sell and at what price. Nowadays, you can choose from literally hundreds if not thousands of online brokers that will offer a trading account for a small minimum deposit and a trading platform for you to trade and invest in all of your favourite financial instruments.
How to Start Trading Online?
The process of signing up with an online broker to trade online is relatively easy. The time taken will vary from broker to broker but it usually takes just a few minutes. Some brokers have longer procedures than others, which can depend on regulations. This is because regulated brokers will require documents to verify your identity before you can start trading online with them. Other brokers will let you trade as soon as you have opened an account and made a deposit. The minimum deposit typically starts from $1. Most brokers provide free demo accounts which can be a good way to practice investing in a risk-free environment until you gain the confidence to switch over to a real account.
The process goes as follows:
- Choose an online broker
- Open an account with the broker
- Make a deposit that you feel comfortable with
- Download or launch the trading platform
- Start trading online!
What is Online Trading?
Online trading is when you buy or sell a trading instrument through an online brokerage firm. They provide you with an account that you can fund with any amount and a desktop, web or mobile trading platform where you can analyse charts and trade or invest in any of the financial markets that you are interested in including forex, stocks, cryptos, commodities, precious metals (gold & silver), energies (oil & gas), indices, ETFs, Options and bonds. It is one of the quickest ways to get access to the global markets to speculate on price movements of various asset classes and financial instruments.
One of the most popular ways of trading online for the new generation of traders and investors is via contact for differences (CFDs). A CFD is a contract between you and your broker where you agree to pay the difference between the price of an instrument from when a trade is open and closed. The difference in price is either a profit or loss, minus any fees. CFDs allow you to speculate on prices without needing to go through the complications of physically owning the underlying asset. I mean, where are you going to store large barrels of oil and pots of gold?!
For example, if you saw the price of gold was $1,200 and you believed that it was going to increase in value, you may look to take a long (buy) CFD position on gold. If the price of gold increased to $1,300 and you closed your CFD, you would have made a $100 profit minus any brokerage fees. On the other hand, if the value of gold decreased to $1,100 and the long CFD position was closed, you would have made a $100 loss with additional fees.
Thus, traders and investors will take a buy CFD position if they believe the price of an instrument will increase, or a sell CFD position if they believe the price will decrease in value. You can trade CFDs for minutes, hours, days, months or even years.
Some brokers will provide leverage which enables clients to trade with larger positions than they would have been able to otherwise. For example, if you had an account of $1,000 and your broker offered you leverage of 1:100, you could in theory take a position size of $100,000 ($1,000 x 100 = $100,00). Whilst this can increase profit potential, it also greatly increases the risk. Thus, leverage is a double edge sword that you should learn more about before you ever consider taking a leveraged position.
When you buy or sell an instrument, there are a few different types of orders you can make. There are instant orders which are placed at the current market price, or pending/limit orders which are at a higher/lower price point in the future. You can add a take profit to your position which will exit the market at your target price and a stop loss which will close the position for the maximum loss that you are willing accept. Trailing stops can be added to a winning position in order to move the stop loss a set distance from price to try and maximise the potential from market movements.
Before investing in anything, you should do extensive research into the market. There is an abundance of helpful online resources that can help to educate you on individual assets and investing in general. You can conduct your own market analysis using technical indicators and fundamentals such as economic news releases, price action and sentiment analysis. Learn as much as possible about how to trade or invest online and make sure you thoroughly understand what you are doing before you start. Even then, it is an ongoing process to keep educating yourself and using your experience to become a better investor.
Is Online Trading Safe?
Is driving a car safe? This is a tough question to give a clear answer to as it depends on so many factors. If someone was to drive a car in fast moving traffic with no experience, we could all probably agree that wouldn’t be safe. Just as trading online without any experience can be risky. In fact, there are always significant risks involved with online investing regardless of your experience level. Nobody can predict what will happen in the future with complete uncertainty so it is very important to only invest what you can afford to lose and remember that there are no guarantees. Most aspiring traders would first open a demo account and practice with virtual funds until they gain the experience, knowledge and skills required to make informed decisions. Once you start having consistent results with your trading strategies, then you may decide to switch over to a real account.
How Much Do I Need to Trade Online?
This depends on the broker that you choose to open an account with. There are many brokers that require a small deposit from just $1 whereas others may require $1,000 or even more. As mentioned above, whatever the brokers minimum deposit, you should only ever invest an amount you feel happy with and don’t mind losing.
Choosing a Broker
As we have already discussed, to invest online you will need an account with brokerage firm. This is perhaps one of the most important decisions that can have a significant impact on how your online trading experience will go. There are forex brokers, stock brokers, indices brokers, commodity brokers, crypto brokers and brokerage firms that offer a range of markets. If you choose a broker that is regulated and has lots of instruments available, you give yourself plenty of choice and some protection should something go wrong. On the contrary, if you open a brokerage account with an unregulated broker that only has a few trading instruments, you limit your options and may not have anywhere to go should things go wrong. Therefore, here are some important things worth looking out for when searching for a suitable broker.
- Minimum Deposit
- Trading Platforms
- Trading Instruments
- Commission Fees
- Customer Support
- Account Funding Methods
- Account Types
- Client Feedback
Trading Online Summary
Hopefully this article has helped to give you a better idea of how to trade online and you may be ready to give it a go. If that is the case and you want to choose a broker, please feel free to browse our broker ratings and broker reviews for some inspiration or even compare brokers using our handy tool. Whatever you decide, make sure you learn as much as possible and practice with a demo account to begin with. This will help give you an idea of what to expect and to see if online trading is for you.