How to Learn the Basics of Online Trading

basics of online trading

Online trading is the most common form of investing today, as most investors use their computers or mobile devices to transact as opposed to getting on the phone to call a broker. To learn online trading, you should spend some time discovering the different ways investors trade the markets, and the tools that are available to help you generate a trading strategy. Once you have gone through the process of learning about some of the basics of online trading, you can move to some more advance concepts and start to invest.

One of the most import concepts you should understand prior to risking your hard-earned capital is risk management. While most investors spend time trying to find a strategy that will make them money, they fail to calculate a risk management strategy that fits within their trading personality.

Risk management describes the amount of capital you will risk, and the expected reward you will achieve from risking your capital. You want to be realistic about the returns you can achieve, and you should do some research into this process before you place your first trade. This is because the reward you gain is predicated on the risk you take.
For example, if you invest your money in a passive stock fund, you long term returns (past 20-years), in a benchmark like the S&P 500 is approximately 8% per year. Some of the best hedge fund managers earn 15% to 20% a year. If you are thinking you are going to double your money every month, then your risk management will have to account for losing all the capital you risk every month.

Online Basics

The first step is to become familiar with your brokers platform. Look through the platform and make sure you are familiar with all the bells and whistles. If you are trading the currency markets, make sure you know how to buy and sell a currency pair. If your broker has charting software, play with it for a few hours and make sure you are comfortable using it. Check to see if your broker has a financial calendar. This will help you determine when new information is coming out and if that information will alter the course of the securities you might want to trade.

Types of Analysis

Determining the future direction of a currency pair or index is hard. It takes time and effort to formulate a view and express that view using the correct instrument. The two most common analysis used to evaluate the capital markets are fundamental and technical analysis. Technical analysis is the study of price action, and using past changes to forecast future changes. You can find levels of support and resistance as well as studies that help determine momentum. Fundamental analysis is the study of macro events and how they will alter the future course of a security. This could be economic data, monetary policy or earnings releases.

Online trading is the most common form of investing. There are many tools that you can use when trading the markets online to help you develop a complete analysis and trading strategy. Prior to entering your first trade you should explore your brokers platform and determine the type of analysis you want to use to help you design your strategy. Keep in mind, your risk management is as important as your trading strategy and will be the key to your investment success.

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