Online Trading and Stock Markets
By Dr. Pooja Lekhi, Professor at University Canada West
With its ease of access and options, online trading has become increasingly popular in recent years.
How to Get Started
To start trading online, first, you need to find a good online stock broker and open a stock brokerage account.
Become familiar with the account interface and take advantage of the free trading tools offered exclusively to clients. Many brokers offer virtual trading options.
Start studying the market every day and research stocks and other financial instruments. Websites such as Yahoo Finance, MarketWatch, the Financial Times and CBS MoneyWatch are great resources for new investors. For more sophisticated information and market updates, follow The Wall Street Journal and Bloomberg.
The Benefits of Online Trading
First and foremost, online trading is convenient. To get started, you only have to open a trading account online, and you can start trading right away. There is no need to visit the bank or call a broker, saving you time and effort.
Another benefit is the low cost. When you work through a stockbroker you have to pay a fee or a commission, which are calculated using traditional methods. Online trading fees are much lower than fees charged by brokers. And with large volume transactions, you can often negotiate a lower fee.
Thirdly, you can easily buy or sell the securities at your convenience. The online trading portal has an advanced interface, which allows you to see your portfolio performance, and this can help evaluate the profit or loss on the investment.
This means you can have better control over the portfolio. You can review your transactions anytime and make decisions with minimal interference.
And lastly, one of the biggest benefits is the speed and efficiency – you can buy or sell stocks with just a few clicks, allowing you to make quick transactions and generate earnings faster.
Learning Trading Strategies
For trading in financial markets, you need to understand several popular trading strategies, including:
- News trading strategy involves trading based on the latest news and market expectations, both before and following news releases. Traders need to assess the news immediately after it is released and make a quick decision to buy or sell the securities.
- The end-of-day trading strategy involves trading near the close of markets. Traders can then speculate price movement based on the price action and indicators. They use risk management orders like stop-loss orders and a take-profit order to reduce any overnight risk.
- Swing trading strategy refers to trading both sides of the movement. Swing traders ‘buy’ a security when they predict the market to rise and ‘sell’ a security when they predict the market to fall. It is based on a technical approach to analyzing markets by studying charts and trends.
- Day trading strategy is about taking advantage of price fluctuations in-between market open and close hours. Day traders follow an organized trading plan that quickly adapts to fast market movements.
- Position trading is a popular trading strategy where a trader holds a position for a long time, mainly months or years, ignoring minor price fluctuations to reap profits from long-term trends.
- The scalping strategy is about placing very short-term trades with small price movements. Scalpers aim to ‘scalp’ a small profit from each trade and believe in accumulating small profits.
How to Analyse the Stock Market
Stock market analysis is a technique used to make investment decisions by studying past and current data. There are two basic types of stock analysis – fundamental analysis and technical analysis.
Fundamental analysis measures a security’s intrinsic value by examining related economic and financial factors. Fundamental analysts look at the metrics on a company’s financial statements – balance sheet, income statement, cash flow statement and footnotes. They check a company’s profitability, liquidity, solvency, efficiency, growth trajectory and leverage. Different ratios can be used to determine a company’s soundness before investing.
The second method of stock analysis is technical analysis. Technical analysts track past price movements and volume, as well as the demand and supply factors that move the market. Charts are a key tool for technical analysts as they illustrate a stock’s trend within a specific period of time.
Trading Guide for Beginners
As a beginner, first, you need to open an account with an online stock brokerage. Take your time researching the reputation, fees and reviews for different options.
Big firms like JP Morgan, Fidelity, Vanguard and Merrill provide both online and app-based trading tools. There are other easy-to-use apps, such as Robinhood, WeBull, Acorns, Stash and SoFi for small trades.
The next step is to start researching securities. stocks may not be the best option for beginners due to limited knowledge. You can try exchange-traded funds (ETFs) instead. ETFs allow investors to buy a bundle of stocks at once. This can help if you cannot choose one company over another. Or you can diversify your portfolio by investing in different assets like bonds or commodities to minimize risk if the stock market takes a downturn.
How to Maximize Your Investment
The best way to maximize investment return is diversification – combining multiple asset classes that are different (stocks, ETFs, Real Estate Investment Trusts, commodities, global bonds, CDs) to a portfolio with an appropriate percentage allocation to each class. Since asset classes correlate differently, an optimal asset mix can increase the return on your investment tremendously and reduce the overall portfolio risk.