Just like riding a bike, the way to learn online stock trading is by trial and error, along with a few helpful tools & safety precautions to help you along the way.
The technology involved in stock trading has come a long way, but in many ways, the stocks game hasn’t changed. Traders are still using strategies that were being used 10 or 20 years ago.
With the right research and some careful strategising, online stock trading can be enjoyable and successful from the comfort of your own home.
Get started in just minutes with our survivor’s guide to trading stocks. From advantages of stock CFDs trading – to selecting individual stocks – to
Understanding Stock CFDs
Stock CFDs (contracts for difference) are a popular way of trading stocks.
Unlike traditional stock trading, CFDs let you profit from market fluctuations through simply speculating on movements of an asset’s price rather than through owning the underlying asset.
The difference in an asset’s price between when you open a trade and when you close a trade will determine your profit or loss.
There are two key advantages to this kind of trading.
Advantage #1: Leverage (or easily increasing your investment amount)
Trading CFDs lets you multiply your investment by up to 500 times, with the option of investing in different kinds of businesses.
Leverage lets you realise a higher potential for profit and loss than your initial investment would allow using traditional stock purchases. Leverage also lowers the minimum investment required to realise a meaningful profit.
Example of leverage:
Let’s suppose that shares of Netflix (NFLX) are trading at USD 280 per share.
If you wanted to buy 100 shares at this price, you would normally need to put up USD 28,000 in capital.
Using stock CFDs and leverage, you may only need to put up 5% of the value of your contract, meaning you could achieve the same “market exposure” by putting up only USD 1,400 of personal capital.
Your profit and loss per point of price movement of the asset would still be as high as if you had invested the full 28,000. So if Netflix shares move to 281 per share, you would make USD 100 in profit (100 shares x 1 USD price movement) – that’s the same profit you would have realised by investing USD 28,000 in traditional stocks.
Advantage #2: Ability To Go Short or Long
The first step is always to choose what you would like to do, buy shares (go long), or sell shares (go short).
Stock trading using CFDs lets you just as easily sell stocks as buying stocks. This means speculating that a particular stock is going to fall has exactly the same process, cost and earnings potential as speculating that the stock may rise.
Usually, “short trading” requires complicated stock loans and entails extra charges. Stock trading with CFDs simplifies the choice down to a simple buy or sell decision.
It’s up to you which stocks you want to buy or sell as it all depends on what value you think the stock will have at a future point in time.
How to Pick Stocks
Spend time researching the performance of the stock and try to detect if there’s a trend in which direction the price is moving.
- What is the current state of the health of the company?
- What news has recently been circulating regarding this company? Global news events can radically shift the fall or rise in stock prices.
- When a
stockhas fallen recently, what were the reasons behind it?
Stay Current on Business & Company News
Let’s take Netflix for example. The streaming giant claimed subscribers would fall 8% in Q2 of this year, citing higher content costs. Concerns for Netflix’s longer-term future rose when Disney announced its rival streaming service, at a fraction of the cost.
So choosing to short trade Netflix stocks at this time might have been a smart choice.
Indeed, Netflix has seen a steady decline in its stock price over the last six months.
Whether it’s Google or Facebook’s advertising revenue, Disney and Netflix’s war for eyeballs, or Tesla backtracking on a decision to close all showrooms – it’s important to stay on the lookout for news that may present an opportunity to buy or sell a stock.
But Don’t Overtrade the News
Putting all your money into Amazon stocks just because they’re having a good quarter would be an irrational decision. Don’t fully expose yourself to a potential slump in their stock price. Choose other assets as part of a diversified portfolio – invest in gold perhaps, or an energy stock like ConocoPhillips, or Nike, whatever makes sense at the time as long as you’re not fully reliant on the performance of a single asset.
Watch For Earnings Reports
Yahoo offers a calendar of upcoming earnings reports that could move a company’s stock price up or down significantly (https://finance.yahoo.com/calendar/earnings/).
Before earnings reports are published, analysts tend to publish their expectations. Whether the final results exceed, meet or fall below these expectations will heavily affect the immediate share price.
In addition to pure figures, the earnings reports also offer a detailed breakdown of the health of a company and what it sees as its future strengths, weaknesses and opportunities.
Look At The Industry
Check if the company’s industry as a whole is doing well or encountering sluggishness.
Indexes are a great way of examining the health of various categories. The NASDAQ-100, for example, is heavily weighted in favour of information technology companies. It includes all of the Silicon Valley goliaths such as Alphabet, Facebook and Amazon. Usually, the performance of the index reflects the health of the tech industry as a whole.
As always, reading news about the industry is a great way of learning opportunities and challenges that can present an opening for a trade. For example, if you learn that stringent new financial regulations are being brought into legislation in America, you might want to consider shorting US banks.
Another thing you’ll want to consider is if your company is keeping up with or lagging behind consumer trends. For example, a keen observer of smartphones and handheld technology in 2008 may have spotted that Blackberry was in trouble because it was failing to produce products in line with rapidly developing consumer and industry trends. The result has been a devastating collapse in Blackberry’s share price – and one that many short traders of Blackberry in 2008 would have profited from.
Overall, the market cap is one of the simplest ways to gauge the value and performance of a company. So for example, if you invested in every available share of stock, the market cap is how much it would cost you to invest in the entire company.
Listen and Read to Analysis
Finally, consider listening to some of the innovative, informative podcasts that are circling every day. There are plenty of great books out there or you could even choose to partake in an online course. Learning about great investors – George Soros; Warren Buffet; Peter Lynch – from the past provides perspective, inspiration, and appreciation for the skills and expertise involved in playing the stock market game.
At TIOmarkets, our Chief Dealer Dave Hannigan offers traders educational, insightful webinars and tutorials, all designed to help traders learn both the beginner and advanced skills needed to execute proven strategies.
Practice Online With an Online Stock Simulator
You can practice on an online stock market simulator, which you can think of as a real-time mirror of actual stock trading environment, but with virtual funds that let you hone your trading skills without spending a dime. The largest benefit of this is ultimately in developing your experience with no risk involved.
Choose the Right Broker for You
For every trade you make, most brokers will charge you a commission, as well as transaction fees on deposits and withdrawals. These charges can add up rapidly and can significantly cut into your losses. The biggest enemy of successful stock trading is expenses. Commissions and fees are good examples of these. It’s money shredded off your account with absolutely no benefit to you.
Accounts like the TIOmarkets VIP Black account ensure you pay a minimal monthly fee in exchange for 0 commissions on your trades, transactions, or anything else.
Regulation & Licensing
Most importantly, it’s vital to choose a reliable and trustworthy broker. Take some time to ask around and do some investigating. It’s no secret that the unregulated broker sector is full of bad actors who are looking to profit by offering a poor or rigged service.
TIOmarkets holds licenses from both the Financial Conduct Authority and the Financial Services Authority, providing the highest-standard trading conditions and overseen by some of the strictest financial regulations in the world.
Use the above information as a guide. Do more reading on your own. Get comfortable with the idea of trading the world’s largest companies from the comfort of your own home. And then click here to register to test out on demo or get trading on a live account.
If you’re already signed up to TIOmarkets, ensure your account is funded.