Stock Market Basics: Online Day Trading

By on August 8, 2018

Gone are the days when you have to call up your stockbroker to buy and sell stocks on your behalf. Recent improvements in telecom technology and internet applications provide the everyday investors with the tools to become a successful online day trader. With 24/7 access to investment accounts, low to no minimum balances required and inexpensive trading fees, first time investors can manage their own personal investments.

Begin with $25 or $25,000 – it’s up to you. And with a little investment education, dedication and patience, you can expand your financial safety net through successful online day trading.

What is Day Trading

Day trading refers to the buying and selling of various financial instruments, such as stocks, bonds, currencies and futures, with the goal of making a profit from miniscule fluctuations in the stock market. The typical day trader monitors the market every second of the day in order to buy low and selling for a higher price at exactly the right moment to make high returns. Since the stock market is inherently volatile, day trading can be a high stress way to invest and accumulate wealth.

Before the widespread use of online trading platforms, access to exchanges and market data for trading stocks was mainly available to banks and large financial institutions. Now, with companies such as TDAmeritrade, eTrade and ScotTrade, anyone with a bank account and internet access can make trades at a very low cost. And with online day trading, transactions can be electronically executed and settled in your account in a matter of moments.

In this fast paced operation it is easy to loose your money so it is important for online investors to understand what they are doing. Learn as much as you can about investment terminology, strategies, current events and online trading methods. And speak with a trusted financial advisor to help you assess smart move for your individual situation. A little financial education will go a long way.

Here are a few ideas to help you get jump into online day trading.

How to Get Started Online Day Trading

Before you start purchasing your first stocks, there are a few things you should carefully assess, your…

  • Initial Trading Deposit and Budget
  • Risk Tolerance and Trading Style
  • Profit and Loss Potential
  • Trading Market of Choice

Deposit Money into an Online Trading Account

When you go to a brokerage to open a trading account, you will deposit an amount of money to secure your trades (your margin) and pay any associated fees. Many beginners choose to start with a small amount like $100, although the initial deposit will vary based on your personal budget and any minimum balance requirements. Then you can increase your contributions over time.

Note: Some markets are only available to investors making trades above a minimum amount, sometimes in the thousands of dollars.

Assess Your Risk Tolerance and Trading Style

Of course, as with all investments, online trading comes with its set of risks and strategies. Determine how much risk you are willing to tolerate. Can you handle losing that money if your trades went wrong? Will you be able to handle the pressure of watching stocks take momentary dives before rebounding to the price you need?

How much risk you can handle will vary based on your experience, time pressures, net worth, available funds for investing and the particular investment vehicle in question. Knowing your risk tolerance will help to mitigate the stress of online day trading. And it will greatly inform your style of day trading.

Each day trader will have their own approach to investing. Styles range from short-term trading, where positions are only held for only a moment to long-term approaches which wait for positions to swing throughout the trading day. Day trading also has different types of trades, such as:
On Trend trades in the direction of the current price movement (i.e. buying if the price is moving up)
Counter-trend trades against the direction of the current price movement (i.e. selling if the price is moving up)
Ranging trades maneuver back and forth when current prices are moving sideways.
Every online day trader has their own combination of trading styles depending on each trade or the current condition of the market. In the end, all of their efforts are focused on the goal of turning a profit.

Assess Your Potential Profit and Loss Margins

Each market has a different minimum price change and minimum amount of money required as a deposit to pay for the stock. In a volatile market, price limits and margins may rise leaving you without flexibility. Determine the margin of what you stand to gain or lose with each of your investments.

Pick Your Online Investment Markets

Once you’ve done your homework and done some basic personal accounting, it’s time to choose a market that is open to day traders. There are numerous market exchanges all over the world offering trades in futures, options, currencies, and stocks. Some of these markets are based on indices (such as S&P 500 or Dow Jones), other on commodities (corn, oil, gold, etc.), some on currencies and many more. Which markets you decide to invest in will ultimately depend on your investing style, spending limits and how much time and risk you can handle.

Location

Investors will also want to consider their location when deciding in which markets to day trade. Online day trading requires considerable monitoring of real-time prices to make informed investment moves. If you are in America investing in Chinese stock markets, it may be difficult to stay up all night managing your positions and still make it to work the next morning – not impossible, just difficult.

And traders all over the world have taken their organizational cue from America’s daily market operations. You may also want to familiarize yourself with the typical rhythm of trading activity throughout the day and how it influences the movement of prices. This will go a long way to help you see and follow trends as well as minimize risk.

The Trading Day

The average market session is broken up into three distinct periods. Early morning trades offering liquidity, good volumes, adequate flows and tradeable ranges after the initial few minutes of volatile trades. Lunchtime slows most volumes to a crawl as most traders regroup and avoid placing bets before afternoon trading. Finally, once the midday news has rolled out, the afternoon session brings real opportunities before end of day rebalancing.

Note: After hours trading is generally discouraged unless you are an experienced day trader since movements are rather volatile and less flexible.

Become a Savvy Online Day Trader

Start small. Start today. Keep abreast of your investment basics, discuss your strategies and goals with a investment expert and be smart with your trades. And if you feel like you’re not quite ready to risk your hard earned money on day trading, you can try out any number of day trading simulators which allow you to pick and trade financial instruments based on real-time data. That way you can get a feel for your abilities and gain confidence in your investment choices.

Ready to online day trade? Learn How to Read a Stock Ticker.

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