When it comes to trading online, there are eight basic principles an investor should follow when trading stocks. These eight principles specifically aim to educate those who are just starting out in this type of trading.
Important Aspects Investors Need to Know About Trading Online
First up is to decide whether to go long or short. Everything starts with buying a stock option and ends in selling. However, before making each move, it is important for an investor to analyze the prevailing trends before going long or short.
Invest only in the amount of stocks that you actually can afford to go long or short with. In maximizing your capacity in investing in stocks offered in trading online, all you need to do is to take your total cash to be divided by the stock’s most recent price point. This means that if you have 500 pounds deposited under your account and the stock you are interested in is priced at 5 pounds, you actually have the capability to invest in 100 stocks.
For every company that you invest in, an identifying symbol is assigned to it in online trading. Usually, these symbols come in the form of three to four letters that are actually the shortened versions of the company’s main name. Online brokers often have links that, when clicked, will show the corresponding symbols assigned to a company.
Types of Orders in Online Trading
You will have to choose the type of orders involved in online stock trading. Among these types are limit type orders, market type orders and stop loss orders. In limit type orders, going long or short on a certain stock will be determined once a particular price is reached. Market type order involves a share that is bought or sold right away at the present price. The last of the three, stop loss order is a combination of market type and limit type of orders wherein if a stock hits a certain price, a follow up action is set. Market type orders are a good way to start out in trading online.
Choosing a price is something that every investor must learn to do. Information on price will only be shared in stop order and limit type orders. It will be a big help if you read up on these two types of orders and how you can fill in the prices.
There are some options that will allow more control on the investors’ part regarding the longevity on how much time a certain order must stay movable. These options include special instructions, routing and expiration of orders. All of these options have pre-set details which are better left untouched.
Trading online also involves orders that are considered conditional. In this type of order, investors are freely able to determine and apply any long and short strategy that they think is best to maximize the profitability of the stock. This is the type of order that is best for those who cannot monitor their trades the whole time. However, this is one type of order that is better used by those with a little experience since it only needs minimal monitoring.
The last thing an investor needs to do is to place the order. All of the orders will be collated. The number of orders will be compared to the cash that is available to be invested. From this, an investor will know how much he can invest and how many stocks he can purchase.