If you’re changing your investing strategy to online financial trading then you’re far from alone. But it’s an unfortunate fact that a great many people who do this will not make money.
Let’s have a look at a few simple guidelines that can give you an unfair advantage and greatly increase your chances of success.
1. Only invest money you can afford to lose.
All investments carry an element of risk, no matter how careful you are, how clued up on the markets, and how experienced and knowledgeable you are. It’s always possible that an investment will go bad and lose you the money you have invested in it.
Money management is supremely important. “Don’t have all your eggs in one basket”. And never put money into your online trading that you should have put aside for paying essentials. You want to be able to make trading and investment decisions calmly and in a detached manner, and not when there is severe emotional pressure on you, which there will be if you’re taking a chance with next month’s mortgage repayment money.
2. Have sufficient funds in your account to start with.
Another form of pressure that newcomers to financial trading often subject themselves to comes in the form of the amount of money they have to trade with. The costs savings that the internet and computer technology have brought have enabled brokers to accept very low minimum deposits. This has opened the doors to financial trading to thousands of people who otherwise couldn’t afford it.
But the price is that many of these people end up losing their money because they simply don’t have enough to trade properly, that is, to spread their trades over a wide enough range of stocks or markets or kinds of instrument. The absolute minimum amount that a new trader should have in his account to start with is in the region of $2,000, or £1,500. You can possibly get away with less only if you have active help from an experienced expert.
3. Develop your own system or method of trading.
If you’re still undecided whether to make a trade after thinking about it for one minute then you shouldn’t make it. But you still need a system, e.g. a swing trading system, to help you make the decision in the first place. The amount of information available on the internet and elsewhere is overwhelming. You can’t hope to process it all.
Whether you decide to become a technical analyst, and refer only to your charts and their indicators, or you become a fundamentalist, and pay attention only to balance sheets, company reports, and news feeds, or steer a middle path, the important thing is to have a system you’re comfortable with and works for you.
4. A reliable broker
Check that your broker is registered with the appropriate authority and has a capital base of at least $7 million (£5 million) or the equivalent. Test the trading platform they provide to ensure you can make your trades quickly and easily with just a few mouse clicks, and that all the information is clear and unequivocal. Ask if they have back-up facilities for if their server is down, and if trades can be made easily by telephone in such a case.
What are their fees like? Do they have a fixed charge per trade, or is it based on the amount you are investing? Are there any hidden fees, such as monthly or annual charges? This may be all right if you plan on making many trades, but not if your trading activity is going to be low to start with.
5. Information is the key to success – and profits.
Market information software is an essential item for any financial trader or investor. Whilst brokers often have extensive tools such as charts, price history and indicators, and news feeds, an independent package such as Sharescope from a specialist company is far better. Time spent on becoming an expert at using such software will help make investing through online trading a very profitable activity for you.
Philip Gegan
