For those veteran investors, online trading is almost second nature, but for beginners who are just starting out, it can be a mysterious and daunting place.
Now that online trading is more accessible and more affordable than ever before, executing a buy or sell trade can be completed via an online trading platform in just a fraction of a second.
Online trading has given anyone who has a computer (or smart phone) and internet access, the opportunity to trade the financial markets. Fortunately, nowadays, you don’t need masses of disposable income, a personal broker, or a fancy, suave suit, (tracky dacks are even a suitable attire if you’re that way inclined).
However, there are a few key requirements that are necessary when starting out in online trading. In order to make this transition more seamless and less risky financially, we have outlined a 3 step system to help you successfully participate in online CFD trading.
Step 1: Understand How the Market Works
Global financial markets operate on a system of supply and demand. When you purchase a CFD stock in a company, your hope is that other traders also want to buy the same CFD stock, creating a competitive demand and bidding up the price.
A rising share price can be accredited to a number of factors, however in theory, it is typically due to improvements in the company’s values and potential, also known as their fundamentals.
In reality, share prices can change for any number of reasons including world events, high impact economic announcements, economic conditions and the list goes on.
It’s important to remember that although the exact direction that the price moves is somewhat unknown and pretty difficult to accurately predict, there are steps you can take to ensure that you have as greater understanding of the likely movement as possible. This includes understanding general price movement, as well as short term price action.
Step 2: Researching and Selecting a Stock
There are two main methods for analysing and choosing the right stock for you to invest in:
The first is fundamental analysis which involves researching the company’s financial reports and public statements in order to determine the health of the company.
Important tools for fundamental analysis include the company’s balance sheets, quarterly and yearly earnings, income statements, expenses, assets and liabilities and news announcements, all of which are available to view online at either the website of the company in question or ASX.
It’s also good practise to check the company’s media releases and history as well as industry trends, as they too can play a key role in fundamental analysis. Bloomberg is an excellent resource for delivering business and market news.
As such, understanding how to analyse a company’s fundamentals involves looking at both quantitative (i.e the financials) and qualitative (i.e the intangible aspects of a company).
The second way of analysing stocks is technical analysis. This method encompasses the notion that swings in share prices follow patterns that traders can use to ultimately predict the potential direction of a stock. It involves studying charts of historical price action in order to predict future price movement and often entails using indicators that represent price movement or volume.
The basis of technical analysis is identifying short and long term trends and patterns, price support and resistance levels, the strength of price movements and who’s in control; buyers or sellers (or neither).
Technical and fundamental analysis can either be used separately or in combination, and both methods can result in choosing successful stocks to invest in. Let us show you how to assess the overall state of the market here.
Step 3: Practice, Practice, Practice
As with anything new, online trading requires you to educate yourself and to practice. Aside from using the above analysis methods to assist you in selecting the right stocks to invest in, it is also important to educate yourself on how to actually trade and practice these skills.
Demo accounts are widely available for beginners to practice their trading risk-free. This provides the opportunity to try trading different markets, time frames and strategies while experiencing a live trading environment, complete with live pricing and the ability to execute trade orders, without risking money.
Practicing your trading skills will not only help you familiarise yourself with the trading platform you’ll be using, but it also enables you to test different strategies so that transitioning to a live account is comfortable and seamless.
Online Trading: The Bottom Line
Online trading has revolutionised investing in the global financial markets. Although this industry seems flooded with stories of those who made or lost millions from the market, it’s important this doesn’t influence your investment decisions.
The above steps are a great starting point for you to learn how to trade online. If you take the time to conduct effective research, educate yourself, and practice your trading skills then you’ll be well on your way to developing a profitable trading portfolio.
Ensure you give your trading account the best opportunity to succeed by choosing the right CFD broker.
To find out how read our: How to Tell if Your CFD Broker is Ripping You Off.
What are the Benefits of Online Trading?
Trade using Leverage
Online trading using CFDs allows traders to make trades using leverage. By using leverage, clients can buy or sell a financial asset with substantially less money than the actual full market value of that financial instrument. The lower the margin requirement, the less capital you need to place into your account to make a trade/s. It is important, however, to remember that increased leverage can also significantly magnify potential losses.
You Can Trade Long or Short
Traders can profit not only from rising markets but also from a downward trending market. This allows you to short the market if you feel a financial instrument will decline in value. This is one of the biggest benefits of online trading.
Global Market Access from 1 x Online Trading Platform
Most online brokers will provide access to a wide range of global financial markets, including indices, forex, commodities, stocks, cryptocurrencies plus more – all on the one trading platform.
Plenty of Trading Opportunities
Online trading provides traders with an almost unlimited array of trading opportunities – again, including stocks, currencies, commodities, cryptocurrencies and indices. For a complete list of TradeDirect365’s products, view our Market Information Sheet.
Want To Learn More About Online Trading?
Then you should check out our Secrets of CFD Trading section which includes a range of educational articles, including;
- Trade the Australia 200 Index / SPI Futures CFD
- 5 Things You Need to Know BEFORE You Start Trading CFDs
- Five Important Tips for Ambitious Traders in 2018
- How to Tell if Your CFD Broker is Ripping You Off