6 Tips for Achieving Online Stock Trading Success

The stock market is an exchange wherein traders can purchase shares in publicly traded companies. Companies go public to raise money. After the stock is introduced to the market through its Initial Public Offering (IPO), it is then bought and sold as the price rises or falls over time. Relatively recent internet-based advances have made online stock trading for beginners a relatively simple process. Following are 6 tips to consider if you want to experience online trading success.

1. Choose an Online Brokerage

Opening an online brokerage account is the most efficient way to begin trading in the stock market. Brokerage houses provide different services, tools, barriers to entry, and fees, so make sure to do your research and find a brokerage house that fits with the style, size, and amount of trades you intend to make. For example, if your strategy is to buy and hold, you likely won’t be making numerous transactions, and so one-time transaction fees may not concern you. On the other hand, if you plan to make several trades within a given day or week, you will want to consider the fees associated with each transaction.

2. Deposit Money into your Brokerage Account

Once you’ve opened your account with an online brokerage and deposited money into it, you’re ready to begin trading. While learning how to trade online is a straight-forward process, learning what and when to trade is one of those critical skills that takes research and practice to perfect.

3. Research Stocks

Image via Flickr by Chris Potter

Publicly traded companies are obligated to file regular financial reports. These reports contain a wealth of valuable information regarding the company’s financial health, performance, and future prospects. These reports are available online and open to anyone who wants to access them.

Every publicly-traded stock is identified by a unique, one- to five-digit identifying marker called a ticker. To invest in a company first find their ticker. 

4. Making Your Purchase

Once you’ve discovered the ticker you can bring it up in your online trading program. From there it is a simple few clicks of the mouse to indicate how many stocks you want to purchase and at what price. Often traders will purchase a number of stocks in the same company over time. This is known as gradual investing and the strategy can help to protect the investor from the risk of buying when a stock price is artificially high.

5. Diversify your Investments

A diversified fund is a fund comprised of a variety of securities spread out across different industries and geographies. The concept behind diversifying is to spread risk. In a diversified fund, when one stock plummets in value, it won’t take the entire portfolio down with it.

6. Avoid Pitfalls

Avoid “hot tips.” If something seems too good to be true, it probably is. A hot tip could be presented by unscrupulous traders seeking to artificially hike a stock price, unload their shares, and get out of the market with a tidy profit while leaving the buyer holding the bag as the stock crashes back to its authentic value.The reality of the matter is that most stocks, over time, will perform more or less as well as the overall market.