In today’s market, more and more people are taking the route to online trading. The number of retail traders rose by nearly 20% from 2016 to 2017 (according to the American Institute of Stress). This increasing popularity has led to a surge in the number of brokers willing to accept online traders. If you’re looking to start your own trading account, here are some guidelines to follow so you can do just that.
Set Up An Online Trading Account
Before you begin trading, you’ll need to have a place where you can keep your funds. One of the simplest and most convenient ways to do this is through an online brokerage. These services allow you to open accounts with various financial institutions such as Wells Fargo, J.P. Morgan, and TD Ameritrade. Just remember that to protect yourself from fraudulent activity, the FBI recommends keeping your money in a FDIC-insured account. There are also many smaller banks and credit unions that offer similar insurance coverage.
Find The Best Trading Platform
There are dozens of platforms available online that enable people to trade stocks, commodities, indices, and more. The key is to find one that fits your needs. A good place to start is the brokerage’s website. Here, you’ll find detailed information about the account including fees, platforms, and available investment instruments. Keep in mind: some brokers waive all fees for new customers, while others charge monthly maintenance fees. You should request a free trial so you can test-drive the platform before committing to any plan.
Create A Routine For Taking Profits And Losing Trades
When you’ve established yourself as a successful trader, you’ll most likely wonder why you should bother taking profits at all. After all, you’re already making money with each trade! This is where creating a routine comes in handy. Decide how frequently you want to take profits and create a schedule that follows. For example, you might decide to take a profit every two weeks or once per month. Even traders who make significant money using complicated strategies often use software to create automated trading plans that take profits for them.
Diversify Your Portfolio
A broad-based stock portfolio is a wise choice for most people. Why? Most brokers will give you at least three options or more to choose from when investing in stocks. This enables you to easily track your performance and take a profit when the market turns in your favor. Diversifying your portfolio with bonds, real estate, or precious metals can also be beneficial.
Watch Out For Systemic Risk
Systemic risk occurs when the price of a stock drops sharply after an unexpected event, such as poor earnings or a terrorist attack. These events can affect the prices of stocks in general, possibly causing more losses for traders who purchase single securities. If you want to minimize the risk of major price fluctuations, consider investing in exchange-traded funds or a diversified stock portfolio. The first is an excellent choice for most people, and the latter can be accomplished through a simple purchase of a broadly-based mutual fund. Both options allow you to easily track your investments and take a quick profit when the market turns in your favor.
Make Sure Your Brokerage Is Compliant With The Laws
As a retail investor, you’re most likely required to follow certain legal aspects when trading online. One important point to make is that not all brokers are created equal. Some brokers have more stringent requirements than others when it comes to following legal mandates. Be sure to work with a broker that is fully compliant or register with the National Association of Securities Dealers (NASD). This organization enforces strict regulations regarding the brokerage industry including:
- Regulation regarding brokerage firms (such as requiring them to be NASD members)
- Regulation regarding trading platforms (such as requiring them to be NASD members)
- Regulation regarding market manipulation (such as prohibiting certain activities including wash trading and front-running)
- Regulation regarding advertisement (such as prohibiting certain types of advertisements including those that boost the volatility of certain instruments or increase risk)
- Regulation regarding customer service (such as requiring call center employees to have at least a college degree)
If you’re looking to enter the market, make sure to do some research before committing. Here are some tips on how to find the best retail broker for your needs.