7 Basic Principles For Stock Trading To Become A Seasoned Pro
It's not a sprint, it's a marathon!
More and more people want to start investing and build their portfolio. And nowadays, it’s easier than ever to buy and sell stocks in online stock trading thanks to new technology that wasn’t available 10 or 15 years ago. If you want to become a trader, here’s what you need to know.
The basic principles to online stock trading
It can be scary to see how easy it is to set up a trading account and start buying. But if you aren’t careful with how you approach it, you could be losing a lot more money than you started off with!
If you’re not sure what a stock is, it’s one of the best ways to earn a profit outside of your normal 9-5 job! And as a potentially great investment, it’s the most familiar term when people talk about trading assets. Buying a stock is like owning a share of a company. And the more stocks you buy, the greater share of ownership you possess.
You earn money when the value of the stock increases compared to when you buy it. It can rise due to a lot of different factors throughout the day. A lot of people buy stocks with the intent to hold long-term, while many have the mindset of earning a quick buck and selling it shortly after they bought some shares.
Whatever your trading approach might be, there are some basic principles to online stock trading you’ll need to be aware of for consistent success!
If you’ve ever read or heard anyone talk about shares, the word “diversify” will pop up within the first three sentences. Whether they’re a veteran or a newbie, everyone knows that diversifying stock holdings is sound advice. The term basically refers to buying many different types of stocks. This spreads your wealth to minimise the risk of losing value. Imagine you bought Php5,000 shares of a single stock. And then overnight, the net worth of that company falls. Then your Php5,000 is now only worth Php3,000. Diversifying reduces the impact of a few bad investments, since overall the net value is still high if all the other stocks are performing well.
2. Buy and Hold for the long-term
While we already mentioned that people like to buy for the short-term, and there’s nothing wrong with that, you need to be aware of the risks of this type of trading. Stock prices typically fluctuate throughout the day in varying amounts. And you can’t control this unpredictable behaviour. But if there are trends in the stock market that you think will grow positively in the long run, you can take advantage of that by holding onto stocks, even if they take small hits over time.
3. Understanding trading behaviour
If you aren’t sure how to figure out the stock markets and whether a stock will rise or fall in value, don’t worry. You’re not alone! The stock market is filled with people who make human errors and a very select few who can foresee the future. Which means most people will react the same way you’d expect them to.
4. Don’t forget about fees
When you trade stocks, the broker normally charges transaction fees. These normally look like a flat value or a small percentage of the amount being bought or sold, depending on which is higher.
5. Trade with a margin of safety
Benjamin Graham is considered as the father of investing. And the margin of safety is a principle he suggested to maximise your gains and minimise risks of investments.
Simply put, it’s the concept of buying low and selling high. For Graham, he would look to buy assets at e.g. $0.50 when they are originally worth $1.
This is one of the core concepts to online stock trading to help you earn on your investments.
6. Don’t buy or sell on emotions!
Due to the volatile nature of stocks, it can really throw you off balance if stocks you had high hopes for suddenly tank. Instead of trying to second guess what you want to do in response to the stock market, figure out a plan before you buy a stock and decide when you’ll sell on certain conditions. Usually, this involves when the stock reaches a certain value or time.
7. Know yourself for the best results!
No two people are the same when it comes to online stock trading. Generally, you can categorise investors as active and passive.
Active investors tend to commit a lot of time and energy in researching the stock markets to fully understand what they are investing in and make educated guesses. They can be rewarded with much higher gains thanks to their commitment.
On the other hand, passive investors may not have the time nor patience for this and prefer investing in stocks that have a guaranteed positive return. Even if this is lower, the security is more valuable than the work put in to research extensively on speculative profits.
The best websites to start online stock trading
If you follow these principles and learn more about your investing profile and behaviours, you should become a pro in online stock trading in time!
Trading through your computer or smartphone is commonplace nowadays. Since time is money (so they say), this means every second counts. And if you catch wind of a hot stock taking off, or you read news about a company that you have shares of and want to offload it fast, lag and downtime are not what you’re looking for! Convenience and how quickly you can access your accounts are what you need.
With this in mind, here are some websites you can visit that offer you good rates to trade online.
This online trading platform is the most popular option in the Philippines. You can open an account for as low of Php1,000 and is generally the go-to choice for online stock trading.
One of the most trusted online trading platforms, you only need Php2,500 to open an account.
For as low as Php5,000, this is a great option for beginners to open an online stock trading account.
If you have an existing account with BPI, this might be a good alternative for you. No minimum is required to open an online stock trading account, but they charge 0.25% of each transaction. The only downside is there is no mobile app to accompany the services.
Think you have a better grasp on online stock trading? Share with your friends if you know anyone who’s looking to get in the stock market!
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