Trading in stocks essentially involves the investment in shares of a business, where you own a portion of the company’s assets and earnings. Many years ago, shares were traded using paper certificates at a physical exchange, such as at the London Stock Exchange.
But now, almost all of stock trading is done entirely online, with plenty of trading options available, including that of contract for difference (CFD) trading where there is no need to own the underlying asset.
Stocks can be a great way to make a return on your capital, but like any investment, it comes with its risks. So, having some techniques and a clear, thought-out strategy in place is one of the ways you can be confident in your trades.
Do your research
The first step to trading stocks online, and the most important initial strategy for success, is to research the asset that you wish to invest in and the stock market in general. Understand the factors that can affect the market and the particular stock you have in mind, as well as knowing when important events occur and keeping up to date with current affairs. All of this could influence the market movement and asset value.
Online stock trading has made it quicker and easier to trade, but part of your research should include scouting the best trading platform for you. You should look for access to trading that suits your style and future strategies, as well as the advice, support and information they have to offer that you could also benefit from.
Start with a demo account
If you have a strategy in mind, the best way to make sure it is tried and tested is with a demo trading account – one of the many benefits of trading stocks online. This allows you to establish your strategy and explore fully the stock market, before moving on to using your own capital.
Once you are ready to trade with your own money, it’s recommended by financial experts to start with a small amount and to spread your risk by buying shares in a variety of companies, in case that company or the market experiences volatility.
Day Trading
A day trading strategy is for those who have an in-depth knowledge of the asset they are trading in, as well as the stock market in general. It requires opening and closing a position on the same trading day, with an aim to profit from the daily volatility that a company can experience.
To implement this strategy, you must keep up to date with and analyse the news, interest rates and the earning reports of the company, as well as any PR disasters or turmoil the company are facing; all of which affect the value of its stocks. If you wish to partake in day trading, make sure to be ready to use a lot of technical analysis of different indicators and charts.
Contract for Difference Trading
CFD trading is a popular strategy for the stock market. This offers traders the opportunity to speculate on the price movement of shares around the world, without owning the underlying asset.
You must use a range of fundamental and technical analysis to apply this strategy, and doing so correctly can see you profit from taking a position on a falling market, unlike traditional investments.
CFD trading also comes with the option of leverage trading, which significantly enhances your exposure to the market, with less capital needed as initial deposit. You must fully understand how leverage works in order to take full advantage, as it can multiply your losses as well as your profits.
Position Trading
For a position trading strategy, you must be aware of identified trends, to understand and profit from movement in the stock market; it involves a lot of analysis of patterns of the stock and the market.
This type of trading strategy involves entering a trade when the trend has succumbed and exiting once things change again. This differs from day trading, as a stock could be held for a few days or months, depending on the trend and asset in question. Usually, a position trading strategy includes fewer investments, but using bigger capital, and works in terms of a long-term strategy.
Swing Trading
A swing trading strategy is based on the price changes of stocks, and usually is applied over a short period of time. To apply this type of trading strategy, technical analysis tools are needed, such as charts and indicators, so that you know when to enter and exit the trade based on the price patterns. This works particularly well with stocks that have a high liquidity, as they are more likely to see rapid price changes.
With a thoughtful strategy in place, you will put yourself in the best position to start trading in stocks online. Always find the best one that suits your style, position size and risk factors.