5 Things To Know Before You Start Online Trading
Online trading is not entirely different from offline trading. While technology is a major difference, there is also a difference in terms of the responsibility for trades. When the order is placed via a call, the onus is on the dealer to execute instructions. In case of online trading the entire responsibility is on you to get the best trade at the best price. The buck stops with you. Our 5-point agenda can help you be more successful in trading online once you start.
A. Have a clear cut trading plan in place
What do we understand by a trading plan? It is all about defining the objectives of online trading. Obviously, you are into online trading to make profits but what you need to understand is that there has to be a clear process. That process is captured in your trading plan. Basically, the trading plan encompasses, how you select stocks, how you scale up your exposure to a particular position, how much risk you are willing to take in a day, how much risk you are willing to take per trade and how much risk you are willing to take overall. There are also discipline limits - at which point you must stop trading and get back to the planning board. Ideally, make it a habit to keep a trading book or an excel sheet. At the end of the day, critically evaluate where your trades went right and where they went wrong. This can form a part of your future strategy.
B. Do you homework thoroughly
The more you sweat in peace, the less you bleed in war. As a trader, you need to be well read and have adequate knowledge of company reports, sector views, macro research etc. Also, make a list of all the global and domestic cues that will impact the price of your stock universe. Keep that ready as a sensitivity spread sheet so that at any point of time you know how a Fed rate cut or a RBI rate hike will impact your focus group of stocks. Your homework should be on a focus group of not more than 20 stocks. Don’t try and trade outside this universe. You should be thorough on these 20 stocks in terms of fundamentals, news flows, and technical charts, among others.
C. Be a fanatic about your online security
This is perhaps the most important thing to take care before you get into online trading. It entails quite a few steps. Ensure that your anti-virus and anti-malware are updated before you start trading. Avoid downloading any unknown software and games on your hard drive to protect the integrity of your trading system. Use dual authentication for trading and keep your password complex and hard to guess. Needless to say, don’t write down your password anywhere. In case you are using the mobile app to trade, ensure that you only use secured gateways. Trading via public wi-fi in malls, airports and metro stations is best avoided. Also, never trade from any cyber café as the hardware may be compromised. Adopt a dynamic approach to changing your passwords frequently so that the secrecy is maintained. Finally, make it a point to always log out of your system when you are not on the trading desk.
D. Learn to separate the online wheat from the online chaff
As an internet trader, you are connected to internet 24X7. That has its merits and demerits. You have easy access to all the news, information and insights at the click of your finger. However, you are also exposed to a deluge of calls and ideas on WhatsApp messages or other online platforms; many of which may look awfully enticing. That is where you must separate the wheat from the chaff. Stick to your trading plan and don’t get diverted by the noise.
E. Focus on visible and invisible costs
You trade online because you want convenience and low costs. Do a complete evaluation of your costs in terms of brokerage and other statutory costs. Also look at invisible costs like missed opportunities, basis risk, liquidity costs, volatility costs, among others. You need to have a comprehensive understanding of all kinds of costs before you venture into online trading.
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