Last Updated on December 6, 2019
Pro tip: whether you’re trading large-capitalization stocks online or trading small start-up—yet to be exchange-listed—securities over-the-counter, do not game the market. Conventional wisdom dictates that expert investors never lose, which is a hoax. It’s one of the longest-standing stock market myths. While speculation is part of the trade, it must be rational and well-placed.
And that’s one of the reasons why online trading trumps previous methods of exchanging ownership of securities. When it comes to trading, timing and efficiency of trade execution are the most crucial factors. Online trading combines both of these tenets. Besides, technological advancements enable the interlinking of geographically dispersed securities exchanges. The interconnectivity is only possible through an online securities platform.
Online trading enables the harmonization of these bourses to create the opportunity for non-US companies to increase their investor base. It’s the beauty of online trading. No wonder all the cool kids are doing it. Online trading takes all traditional modes of trading and encompasses them into nuance trading parameters to provide unprecedented efficacy.
Online Securities Trading
What you trade online is the very securities traditionally traded with paperwork. They include equity (stock/shares), bonds and treasury bills, and forex. You can also trade hybrid securities that are relatively novice in terms of development and introduction into the financial markets. Examples include cryptocurrencies, derivatives (options and futures), real estate investment trusts (REITs), and contracts of difference (CFDs).
Types of online trading vary depending on the investment horizon. One trader may want to log onto their online account and trade several times a day—short-term online trading. Other traders have their sights set on holding securities a bit longer—mid-to-longer term (a couple of weeks, months, or years) online trading.
Employ the following kinds of online trading to have your investments on the up and up.
A while back, day trading used to be a skill almost exclusive to highly knowledgeable traders. But today, hundreds of thousands of short-term online traders frequent the financial markets via online trading firms. Regulators have relaxed day trading laws, and the online trading firms have made it ridiculously easy to open day trading accounts.
You’ll only need as little as $100 to start trading forex. Most online trading cash accounts will pay interest on the account balance between trading periods. On top of cash accounts, you can open margin accounts and get access to leverage loans. You can max out such credit at up to $25,000 when day trading equity.
The best day trading strategies include:
1. Price Action Trading
As a day trader, changes in prices are your number one cue to make money. Be on the lookout for real-time price changes so that you buy low and sell high.
You can easily be a scalper day trader if you have a keen eye on the bid and ask spreads and order flows. You make profits off scalping by selling a security at a higher asking price than its spread. Typically, dollar amounts made from scalping are significantly low, but you can leverage volume trading (multiple day trades) to get more dollar returns.
3. Market Making
Day traders are market makers. The intraday trades they make account for huge blocks of securities. They make the market by controlling supply and demand forces, which affect prices. The fluctuations can create an arbitrage window and potentially more daily returns.
4. Efficient Hypothesis Theory/News Trading
Efficient financial markets reflect fundamental analysis information in real-time. The impact of a press release, financial report announcement, or product launch is insanely flawless. Day traders can bank such information to make a buck.
Case in point, Tesla recently launched its CyberTruck with one of the primary selling points being unbreakable windows. Unfortunately, one of the front windows happened to break at the launch in full glare of a live audience. And millions more watching the event on TV and online. The effect: a 6.38 percent ($ -22.65) drop in Tesla’s stock by close of the market on the same day.
It’s a medium to long-term trading strategy where the online trader buys and holds security for more extended periods than less active day traders. Position traders dig into securities and analyze markets to get a feel of the economic and financial situation on the ground. The extensive research accurately predicts future changes and potential market trends.
Trends reveal highs and lows. Trend analysis based on historical prices and volume traded shows the momentum of securities. With the correct information, picking a security to buy (trough position) and sell (peak position) is comparatively easy.
Once you identify the momentum, you also can predict price swing behavior. Certain stages of a security’s trend will exhibit episodes of up and down price movement. The short spikes can happen when the stock is exiting a trough and moving into the high zone or tanking from a peak.
At this point, there is a factor(s) affecting the security and resisting its price change. The security, which, for instance, can be stock, is said to be trying to break out above resistance levels or break down beyond the support lines. The best tool for swing trading is a security screener. It gives you a head start to the price swing learning curve while the rest of the traders play catch up.
Online CFD Trading
Warning: CFDs are potentially extreme and can erode your investment capital in a short span of time. That’s because they expose you to market, liquidation, and counterparty risks. CFDs enable you to exert a warranted assumption on the market (shares, forex, ETFs, commodities, and indices) performance.
It’s a contract between you, the buyer and a seller. It states that you’ll offset the difference between the current value of an underlying financial asset and its value on the expiry of the contract. If the value is negative at contract time, you’re in the clear.
Rebate trading is synonymous with selling short in financial investment circles. When rebate trading, you’ll have to use your research and trust your gut that a stock price will drop significantly. Once you’re confident that prices will dip, you borrow shares from a dealer or third party and sell to a buyer.
Later on, prices drop, and you buy back the shares that you borrowed earlier and return the shares to your share lender. You pay the lender a portion of the interest or dividends earned from short selling.
Usually, traders don’t stick to one type of online trading. A trader could be somewhere brainstorming how they can develop a trading approach never seen before. Or modify one of the kinds in this listicle to suit their trading needs.
The general idea is to understand the types of online trading and to stick to one or a combination that works for you. Let an investment plan precede your preferred type of online trading. Don’t forget to review that investment plan regularly and make appropriate adjustments. Check out our guide on the different types of stock trading for more information.