Interested in trading online and wondering how does online trading work? Or what are the steps required to start trading online? How does online trading work in South Africa?
Well, first of all, money breeds money. You cannot walk into online trading with no money. To make money in online trading, you got to have money first.
Not just any money but just the right amount of money to satisfy the minimum deposit requirements for the online brokers that you need to open a a trading account to start trading with.
Secondly, make sure you are not underage. Some countries require you to be 18 years old before you can open an online trading account and you may need to provide proof of identity like a car license or passport.
What Is Online Trading?
Online trading is simply buying and selling that happens through the internet of such financial assets such as shares, commodities, futures and currencies and bonds. These are the main ones anyway.
What this means in simple terms is that you can sit in your pajamas in your house, open your laptop or iPad or iPhone and log into your online trading account and start trading-buy or sell shares, currencies etc and make money with just a click of a button.
All you need is an internet connection.
That is the very basic definition of online trading.
What Is The Objective Of Online Trading Then?
To make money! That’s the objective of online trading.
Everyone wants to make money. I want to make money. You want to make money… that’s why you are on my site reading this right now.
If you are not interested about making money, you wouldn’t be reading this right now.
Now, can you be successful in online trading? Yes and No.
Online trading is not for everyone. There’s only one way to find out if you are made for it and that is to do it and see for yourself if you are made for it or not.
So how do you get started in online trading then? Well, you have to follow these 6 basic steps.
Step 1: Educate Yourself-Learn the Markets
The first step and path toward online trading is education.
If you cannot swim, don’t jump into the pool, you’ll drown.
If you are interested in online trading, you got to learn first.
Research online. Read books or buy books and read.
Know the different types of markets that can be traded, what moves those markets.
Learn about fundamental analysis.
Learn about technical analysis.
These things take time to learn, believe me…unless you are very smart with a very high IQ.
Step 2. Analyze Potential Investment Vehicles
When you want to trade online, you got a handful of options or markets or financial assets as some call it where you can invest your money in and I’ve mentioned these above but let me say it again here and they are:
- currency (forex)
- share market or they call it the stock market in USA
These are the products you can trade online.
Now, you need to figure out yourself which of these products you want to focus on. Each market has its own behavior.
Find out what you want and learn as much as you can about it.
So where do you learn?
Well, the first point of call is the big old “G”…Google.
Search in google for what you are after and there are bound to be hundreds, if not thousands of sites where you can access free information about how to trade these markets and educate yourself.
Step 3. Select An Online Broker
A online broker acts as the link between you the investor/trader and the market. The online broker has the infrastructure and the technology and the expertise to link you to the market.
In addition to that, they provide you the trading software or the trading platform which basically works off the infrastructure and technology that the online broker has in place and its is through this trading platform where you can buy or sell and make money in online trading.
Depending on which investment vehicle you choose your broker can be a:
- stock/share broker
- forex broker
- commodities broker
You need to do your proper research and find out which online broker is the best for you and go with that.
Step 4. Strategize and Test
Now, not all traders go blindly into online trading without a little bit of familiarity. These days, it is not unusual for online brokers to give you access to virtual trading accounts or demo trading accounts.
These are virtual money where your broker gives you as demo trade to get a feel and understanding of their trading platforms and be familiar with the settings and how to use that trading software.
But the most important part of demo or virtual trading accounts is the fact that these allow you to test your strategy and see if it works on not in real time using real market data.
Step 5. Make A Trading Plan And Stick To It
The reason why many traders do not succeed in online trading is all down to one reason only: not sticking to a trading plan.
So what is in a trading plan? A trading plan involves these:
- trading strategy to use
- how much to risk per trade.
- how many trades per day/week/month?
- what is your max allowable loss per day/week/month before you stop trading to reflect?
- what timeframe are you going to trade in?
- which currency pair or shares or commodities are you going to focus on?
- when and where do you take your profits?
- when do you exit a trade?
- how do you manage a trade?
These are the kinds of questions you need to ask yourself and these form your trading plan.
Step 6. Are You Ready for Online Trading? Fund Your Online Trading Account
Now that you have a trading plan in place, and you’ve tested your strategy and know it kind of works based on your demo or virtual trading account and you are excited to get started now.
So you open a live online trading account with your broker.
Once your online trading account is approved by the broker, next thing you do is to send money to your trading account.
These days, you can do it by PayPal and bank transfer or by credit card. Your broker will have the methods that they accept for you to deposit funds into your live trading account.
So you transferred by bank $50,000 into trading forex. Awesome! Now you are ready to make some real cash!
Online trading is not for everyone. If you are someone that don’t like losing money, online trading is not for you because when you trade, losing is part of the game.
If you cannot handle losing money, stay out of online trading.
It is also important to have an adequately funded online trading account. You cannot trade a $100 forex trading account and expect to make $2000 in a month.
The secret to online trading success is creating a trading plan, sticking to it come rain or sunshine. Once you have that kind of mindset, you are on your way to online trading success.