Whether you are successful in the art of investing or not, the act of trading on the stock market has never been easier.
Once the pursuit of the learned elites and Wall Street hedge fund managers, advancement in technology and availability of information from websites like BestTradingApps.co.uk means that anyone – that’s anyone with an internet connection, really – can engage with the market and launch their own investment portfolio.
Interested in joining the thousands of amateur investors dabbling in the market? Read on for our whistle-stop tour of trading stocks online.
The basics
Investing in stocks means, simply, to buy shares of ownership in a particular company, in the hope or belief that the company will appreciate in value over time.
If the company’s value rises, you will earn a profit of the difference between the share price you purchased and the share price you sold at. Of course, that sounds great, but trading stocks means accepting risk, too and if a company’s value decreases over the lifetime of your share ownership, it means making a loss if you choose to sell.
There are a number of well-worn strategies for beginner traders available online if you do not have an idea in your head of the types of stocks you’d like to invest in, but as a general rule of thumb, industry advice is to consider stocks a long-term investment, rather than a get rich quick scheme – this means investing in a broad range of companies, across industries, to avoid taking a hit to the wallet should a particular sector experience volatility.
Of course, you may like to play fast and loose – and that’s your prerogative. Higher risk means higher rewards, but you should never place more capital at risk than you can afford to lose.
Choosing a brokerage
In order to trade stocks, you’ll need to open an account with an online brokerage, which will act as your virtual gateway to the trading floor. The increase in quantity and quality of amateur traders means that this is a really emerging and energetic market, with traditional brokerages spending a lot of time trying to bring their apps and online services up to speed against a host of online-only alternatives.
To make the right choice, it’s important to understand what it is you’re looking for in a brokerage. Maybe you’ve taken a short stock trading course and feel confident in your own abilities, or maybe you’re a complete beginner, and want to lean on the number-crunchers for more guidance.
Our friends at BestTradingApps.co.uk rank eToro as their online brokerage of choice, and with good reason. A cutting edge mobile app and user-friendly interface cuts through a lot of the noise, but, crucially, they also offer investment support through their ‘roboadvisor’.
Accounts which utilise roboadvisors effectively allow algorithmic support from the brokerage to help plan trades and manage portfolios. They were introduced after the devastating economic crash of 2008, and are now commonplace in the online trading world.
In addition, eToro offers a ‘paper trading’ service – effectively providing traders an opportunity to gain experience by trading dummy funds (paper) in market conditions to trial strategies. This is offered free by many brokerages, including eToro, and has no impact on your actual investment account.
Trading style
Once you’ve selected your brokerage of choice and deposited your funds, it’s time to trade. Broadly speaking, there are three main styles of trading when it comes to stocks – there are of course variations to strategies, but they fall into three largely distinct categories.
The most common, and arguably best, approach, is the passive or long-term mindset. This simply means investing in stable companies with a track record for unremarkable but steady growth, in growing industries, to make secure gains. These tend to be the backbone of pension fund investing.
Day trading is a more short-term approach, whereby investors buy and sell stocks within a single day’s trading – effectively attempting to take advantage of situational price fluctuations before stocks revert back to their stable values.
Perhaps the most complex to pull off is active trading – in which investors can be looking to either short or long-term, but will make numerous trades over a weekly or monthly period, hopping on and off stocks based on which way they are trending.
Of course, chances of success on any of the types of trading above are greatly enhanced by doing research and studying the market. For those on a modest budget, setting automatic stop-loss limits on your account is an important thing to do for peace of mind.
Happy trading!
Disclaimer: Investing money carries risk, do so at your own risk and we advise people to never invest more money than they can afford to lose and to seek professional advice before doing so.
