The internet has made it much easier to do many things. From keeping in touch with friends and loved ones to buying obscure and niche products from an artisanal business on the other side of the world, the web lets us do all this without getting up from the sofa.
More recently, the internet has sparked a revolution in people looking to assume greater control over their own finances. Instead of offloading the work to an advisor, they’re going online to buy and sell financial instruments like shares, ETFs, and foreign currencies.
Social media is awash with people talking about their trading journeys, including their approaches, strategies, and results. Many of these ‘influencers’ are quick to tell you that you should copy exactly what they do, though it’s important to understand that what’s right for them may not be right for you and your own appetite for risk, or your financial circumstances.
Instead, you should follow your own path. Here’s how you can find it.
Understand the Principles of Trading
Unlike some other approaches, trading generally involves taking short-term positions on a particular instrument. For example, if you think the FTSE 100 is going to rise in value today, you can buy exposure to its movement.
In trading, you are looking to take advantage of the short-term inefficiencies of the market (essentially, mispriced assets). While the two words are sometimes used interchangeably, trading differs from investing because you won’t hold an individual position for a long time, whereas you could hold an individual share in a company for your entire life.
Creating a Strategy
Once you’ve decided that trading is for you, you need to consider what you want to trade and how. For beginners, it usually makes sense to stick to one type of asset to start with so you can better get to grips with using the tools before you branch out.
Before you start opening positions, you’ll want to set yourself a plan. This will help align individual decisions with an overarching goal.
Everyone is different, but most traders factor in their motivations, targets, attitude to risk, and available capital—as well as metrics to measure success, time commitment, and preferred markets to trade in—as part of their plans.
Once you’ve created your strategy, you should try to stick to it but also be aware of what’s working and what’s not so, you can revise it over time. In particular, you should make sure you don’t chase losses and use tools like stop-losses to protect against this.
Choose a Platform
There are many online trading platforms available on the internet, but they each have different qualities that may make them more suited to some traders and less to others. Therefore, it’s important to understand your needs and look for a platform that works for you.
One of the biggest factors to consider is what instruments the platform allows you to trade. If you’re interested in forex, then you’ll want a site that offers this, likewise for individual shares, entire indices, or exchange-traded funds (ETFs). Alternatively, platforms like Equiti online trading offer all of these types of instruments under one roof, making it more convenient.
Other factors you’ll want to consider include what commissions and fees they charge (if any), the size of spreads (difference between buy and sell prices), and what tools they have available.
You’ll also want to make sure whatever platform you use is licensed by the Financial Conduct Authority.
Practice With a Demo Account
While success in a demo account does not guarantee returns in a live account, practicing your approach this way lets you get a better understanding of the trading tools you have available and how best to use them.
Most reputable trading platforms offer demo accounts to their clients, so this should be easy to find.