Online stock trading can be an exciting and prosperous venture, but if you’re new to it then there are a few things to watch out for. New and experienced traders can make some serious mistakes which don’t only result in bashed egos, but also in depleted finances. To make sure you don’t fall into some of those traps, here are a few top tips on mistakes to avoid when trading online.
1: Investing too much
Unless you’ve a decent amount of capital and a decent amount of evidence to suggest that a trade is going to be profitable, it’s always a good idea to reel in your enthusiasm (and credit details). Short-term fluctuations in volatile markets can result in big payoffs, but they can also result in big losses. Investing too much, particularly in the early stages (without much research for reliability) could be a devastating Achilles heel to your finances. Take your time, watch the markets and think analytically before investing. See what others make of your deal ideas
2: Not understanding how online trading works
There’s a lot to understand about online trading. It’s wise to appreciate how the figures work so you understand the potential return or loss on an investment. Also, consider which tools are available and how they might assist you. Do you know the differences between the different markets, what key terms such as “spread” mean, and more? We recommend finding out as much as you can before taking the plunge. Many sites offer useful FAQs and guides, so try taking a look at them to better understand how online trading works.
3: Not knowing your cut
It’s easy to believe that you’ll receive a large return on an investment, but you might be forgetting about commission charges or other fees which mean you’ll receive less than you think. If you’re charged per trade, you’ll need to be picky about which trades you make because you could lose more than your profit in doing so. If you’re charged a small slice of your profits, consider whether or not this affects your overall risk, or whether you might wish to find another site with lower costs.
4: Ignoring advice
Most good trading websites offer a lot of useful, up to date advice. They hire experts, build communities of traders, analyse the data and more for you. As such there are hundreds of hours worth of work and analysis which you can take advantage of. Whilst “gut feeling” might have some use, it seems foolish to ignore the work of experts. If all signs point to loss, why invest? However if most reliable sources are seeing green, why ignore them?
5: Using the wrong service
There are a lot of different online trading services to choose from. Some of them specialise in particular markets or types of trades. If you think you’re looking to make long-term investments, for example, find a site which caters to that. You should receive better long-term options over all, with specialists in that field to guide you. Using the wrong service because it’s “more popular” or “easier” may not always be the right thing to do.
Taking your time and seeking advice is helpful in any new venture, but particularly when it comes to investing your hard-earned money. Spend some time getting to understand how online trading works, and hopefully it should (literally) pay dividends.