It is the age old question, can someone really make money trading online?
I have seen countless stories of self-made millionaires who with no experience at all. These people seem to always have some solution to make you a successful trader. Either it is some software or some trading system.
In reality, the truth is far from this. Trading online, like any discipline requires focus and dedication. It requires someone to get a sense of how to trade with introductory courses. It can sometimes be hard and may take some time, but in the end the rewards will pay off.
It is when traders realise this evident truth, when they stop looking for shortcuts and get rich quick schemes, do they make the most gains.
What do you want to trade?
Before you can start trading online, you have to know exactly what it is that you want to trade. This includes the type of asset class and then the type of investment instrument you would like to use.
There are a number of different asset classes that one can focus on. Even then, once you have zoned in on the asset class that you want to trade, you have to decide on the individual assets. Although a trader can be quite general it is sometimes also good to specialise in a particular asset.
Do you want to trade equity and try to pick winning companies? Or would you prefer to trade the massive currency markets? Perhaps you would like to trade commodities and make the most of imbalances in supply and demand.
There is no right or wrong answer for this and some traders do tend to trade assets from a number of different classes. It should come down to what you are interested in learning more about.
Once you have decided on the type of asset class / assets that you would like to trade, you have to make a choice on the type of instruments you would like to use to do this.
There is plain vanilla equity and Forex. It is termed this way as it is simply buying the stocks or Forex as is and holding it in a share trading account.
The other instruments one can use are CFDs, Spread trading and Binary Options. These can be slightly more risky as CFDs and spread betting involves the trader using margin trades which are inherently more risky.
Binary Options could be a good alternative for those traders who would prefer to trade a relatively more simply instrument with a defined downside risk and payoff.
Once you know exactly what it is that you would like to trade, you have to understand the basics of trading.
Understanding the Basics
Knowing exactly what drives the price of an asset is essential to forming a successful trading strategy. The trader should understand the fundamentals of Supply and Demand as well as some key technical indicators.
This can be initially challenging for the trader as these concepts are usually quite specific and build on each other. However, there are endless resources that are available online for free so the trader has no excuse not to learn some concepts.
Moreover, the terms and phrases that are used in trading can be slightly confusing. Hence, the new trader should take it upon themselves to learn about “bullish”, “bearish”, “lots” etc. Once these terms are understood, learning new concepts becomes easier.
Indeed, there are professional managed account traders who are able to offer training and eduction for beginners. Often times, these traders enjoy helping others breaking into the market.
Find the Right Broker
Before you can start trading, you need to find the right broker. This can indeed also be one of the more complicated decisions as there are so many brokers out there.
Firstly, once the trader knows what instrument and asset that they would like to trade, they need to know how what to look for when choosing a broker. Many brokers offer cross asset trading but focus on a particular investment instrument.
The trader will also need to make certain that the broker is regulated. This is imperative as unregulated brokers can be a problem should you have any disputes regarding payment.
You should also be make certain that the trading platform the broker has works well for you. Is it easy to use and functional? What tools does the platform have for technical trading etc? It is also important to ask the broker whether they have mobile trading functionality.
Another important requirement is that the brokerage has effective customer service. Nothing can be more frustrating than a broker which is unresponsive to a client’s queries.
Once you have found the right broker for your purposes, you will want to test out the platform as well as your own skills. This is where practice comes in.
Practice makes perfect
Like in any other discipline, the more that you practice, the better you become. This is where demo accounts at brokerages can come in handy. These allow you to trade without the risk of losing actual money.
These demo accounts are usually funded with fake money that the broker provides to the client. This has all the characteristics of a live account but takes away the potential of actual client losses.
This is good for two reasons, firstly it allows the trader to practice their skills in a non-threatening way. Yet, most importantly it does not allow for a situation where the trader is disheartened by any losses.
This could also be a good option for the trader who was saving money until they had enough to invest in the account.
Now that you have honed your trading skills, you can invest some funds and start putting them to good use. There is no need to invest a large amount of money at first. Make certain that you are comfortable with the investment amount.
The old saying with trading is that you should only invest as much as you are willing to lose. Trading is risky and there is always the chance that you could lose some funds. The last thing that you want is to deplete an account once you have just started.
Fight Your Emotions
This may be a strange concept to some but it is essential for the successful trader that he should keep his / her emotions in check. Making trading decisions based on how one feels about previous losses or gains is wrongheaded.
You should stick to your strategy and allow the trends and other trading signals to inform your trading. This also ties in with the important discipline of money management. A trader should know exactly how much they would like to trade and adjust trade sizes based on this defined strategy.
Trading online can be a profitable way for somebody to legitimately make money from the comfort of their home. They should however, be under no illusions as to how easy this could be.