Online trading is now bigger than ever. With more and more people flocking to the scene and trying to grow their investments-you might think it’s for you. The reality is-you can make some good money trading online. However, there are some pitfalls. Whether you’re going to trade traditional stocks or enter the financial spread betting arena-we’re going to look at five important things to consider before you jump in.
1. The difference between financial trading and spread betting
Trading stocks online can be a lot like traditional share dealing-but it doesn’t have to be. You need to make the choice and decide whether you’re going to actually hold stock, or simply bet on where you think it’s going to go.
Lots of platforms offer traditional share dealing but with the ease of being online. With this type of brokering, you still need enough money to hold a position and you’ll need to hold onto stock for a while. You’ll also either have to pay a membership fee or a small amount every time you trade. This is for traditional investors who want to make traditional returns.
Alternatively, there’s financial spread betting. The great thing about this is you don’t actually have to hold onto any stock-so you don’t need as much capital to get started. In essence, you can simply bet on a commodity or stock that you think is going to go up OR down. You pay a price per point and could make a profit in an hour or two. In a volatile market, you could make a lot of money-but you could also lose more than you bargained for. The reality is that very few people actually make a full time living with financial spread betting-but it could be for you.
2. Make sure you know the tax implications
Making money trading stocks isn’t always straightforward when it comes to filling out your tax return. Make sure you know all the implications as to how much you’re going to get taxed. One of the advantages of spread betting when compared to traditional online trading is that it can be treated as gambling earnings, which has different tax rules. For example, in the UK-you don’t have to pay tax on anything earned through gambling.
3. Make sure you use a tried and tested brokerage firm
There’s lots of choice out there, but you need to find the right online trading platform for you. Have a look around and open a few trial accounts. Make sure you only decide to invest with a company that offers everything you want along with the right payment plans. High volume traders might want to pay a fixed monthly fee in order to trade with 0% commission, but if you’re just getting into it as a hobby this might not be viable. Read a few reviews and make sure you pick the right firm for you.
4. Practice makes perfect
Make sure you don’t jump straight in and start gambling. Most online platforms offer trial accounts with options to trade with “pretend” money. Have a play around and see if it really works for you. In reality, paper trading can give you a good feel for things-but it isn’t the real thing. People don’t make the same decisions when it isn’t real money on the line. When you do decide to use real cash, start with small amounts and only invest amounts you can afford to lose.
5. The right charting software is crucial
While many online platforms will have their own charts, these are often thrown together as an afterthought. You can do much better. Choosing the right charting software, and learning how to make the most of all the tools at your disposal, could be the difference in making money with your investments or not.