Online trading is the buying and selling of financial assets through an online trading platform, with the aim to make a profit.
Many brokers provide online trading platforms these days. They make it possible for anyone with a computer or mobile app and internet access to trade the markets.
Online trading has replaced phone calls to your broker and offers a do-it-yourself option. You can trade a range of stocks, bonds, mutual funds, currencies, ETFs and options in real time.
Is online trading the same as investing?
No, online trading and financial investing are different. Both are a way of seeking profit in the financial markets. The key difference is the lifetime of market participation. Trading is generally focused on short-term gains. Whereas investing is centered around seeking long-term gains over a period of time. You could open a trading account online and place trades yourself via your laptop or mobile app. With investing you have the option of asking a bank or wealth manager to invest your funds for you for a fee.
Spread betting and CFD trading are two popular forms of leveraged trading online.
What’s the difference between CFD trading and spread betting?
Spread betting and CFD trading are a way to predict the price movement of financial assets. The prime difference between the two is that spread betting is slightly more tax efficient.
Since you don’t actually own the underlying asset when you spread bet or trade CFDs, you save money by not having to pay UK Stamp Duty. Spread betting is available only in the UK and is exempt from Capital Gains Tax as well. CFD trading is offered in many countries globally.
What should I look for in a trading platform?
There are several important factors you should consider when choosing a trading platform. Reliability and security are the most important. Be sure you are choosing a platform that is reliable in execution.
Also consider the platform charges so your fees don’t eat into your profit. Check that the trading platform is licensed and monitored by a regulatory authority. A good provider will always be transparent and upfront about their fees and charges.
Choose a trading platform that is easy to navigate so you can dive in quickly. What kind of trading tools and features does it offer? Lastly, select a trading platform that has a good reputation.
How can I minimise risk?
To minimise your risk, allow yourself some time to become familiar with the markets. It also pays to develop a strategy, and pre-plan your trades. Trading comes with some inherent risks as the markets can be unpredictable. Research and discipline will help you to minimise your risk. Try to keep your emotions in check and stick to your strategy.
Start with small investments with the goal of protecting your profits. You should also try to limit losses and must never trade money that you can’t afford to lose.
Don’t be tempted to make on-the-spot decisions for a large potential payoff. If the trade goes against you, the loss would be too large for you to handle. Finally, always stay disciplined.