Online Trading Basics – Learn These First

Online Trading Basics – Learn These First

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They say it’s important to master the basics in whichever endeavor you pursue, and this applies doubly to trading stocks online. The stronger your foundation the higher up you can build, so don’t overlook getting a proper education before starting out.

Choose the Right Online Brokerage

The first thing you want to do is make sure you’re using a great online brokerage firm. They should have stellar ratings, and low per-transaction fees. Later on when you get the hang of it you can switch to a higher class of brokerage, but when you’re starting out and watching your expenses you’ll want to find one with a good mix of features and price.

Trading stocks is a lot of fun when you’re with the right brokerage, so do your homework on this and choose the one that best suits your taste.

Get a Solid Grounding

You want to learn enough about online trading so that you feel comfortable and ready to make your first trade. There are online courses you can take that will walk you through it and take you from knowing nothing to knowing enough to feel good about what you’re doing. Here are just a few basics:

Know the Different Stock Types

There are two main types of stocks, common and preferred, and you’ll likely be trading common stocks when starting out.

  • Common – Common stock is what most people think of when they think about “trading stocks” and it’s the most highly traded stock that comes with voting rights and possible dividend payments.
  • Preferred – Preferred stock will have a higher position than common stock in terms of dividend payments, but don’t have a voting right when it comes to shareholder meetings.

Know the Different Order Types

  • Market – A market order will make it so your stock is sold right away at current market prices. Choose this option if you want to make sure the trade happens.
  • Limit – A limit order allows you to set a price that you’d like to buy or sell a stock for, allowing you to make sure you get it or sell it at a price that’s favorable for you.
  • Stop – A stop order makes it so you can limit the amount of a loss, or lock in your profits by making sure your stock is bought or sold when a specific price is achieved.

Have an Overall Strategy

You should know what your goal is and stick to that goal as you trade. Staying true to your original plan is key, and is not always easy when a stock has an initial dip. If you don’t have a plan in place you’ll be more tempted to sell early and take the loss rather than sticking it out to take the gain.

Practice, Practice, Practice

Luckily it’s easier than ever before to practice your trading strategy before putting any actual money on the line. Make sure you’re applying the things you learn to a stock market simulator and seeing how things would have panned out. When you have a solid base of data suggesting that you’ll do fine switch to real trading and go for it.