What Is Online Stock Trading?
The exchange of shares in publicly listed companies through the internet occurs daily at immensely large volumes. Trading stocks online is immensely easy and anyone can get started, even if they don’t have any previous trading experience.
The trading of shares online has made it easier than ever for investors and traders alike to make profits on investments on companies not only in their home country but throughout the world. Hence, if you’ve been wondering what is online stock trading, and then continues reading to find out more about the dynamic online trading word.
Stock trading is one of the most essential processes of a mature and reliable financial system. It’s the process where owners of shares in public companies can sell their holdings to buyers, whether they be retail investors or other corporate institutions.
It’s through the process of stock trading that the daily movements in stock price occur. This is due to the inherent laws of supply and demand. If there are more people wanting to buy a stock than those that are looking to sell, then the share price will likely move upwards in the markets during that day.
Since the beginning of stock trading, investors and traders have gone to seek to make profits from these fluctuations. The strategies that they enforce can vary quite significantly. Stock investors that are conservative and are looking for long-term returns, will likely only buy and sell shares every once in a few years.
For them, they are looking to make superior returns from trusted and high-performing companies. On the other extreme, certain stock traders are looking to capitalize on large fluctuations in buy and sell orders for shares in order to make a profit.
When it comes to the question of what is online stock trading, it’s simply the exchange of stocks that occurs through an online brokerage platform. These brokerage platforms are often run by private or public companies that maintain and moderate the trading platform to ensure that there are enough buyers, sellers and that the marketplace is free from scammers and illegal activity. If you look throughout the internet, you’ll find thousands of different online stock trading platforms that are run by a multitude of different companies.
Each online stock trading platform will have different features and be catered to various types of investors and traders. For example, a given online platform may be specifically tailored for those that are looking to trade commodities, such as precious metals.
On the other hand, another platform may be created purely for those that are looking to gain some exposure in international equities of companies in the consumer discretionary sector. Furthermore, some platforms may be wide-reaching and be able to cater to a huge range of different investors and traders.
For those that are new to online stock trading, it may be best for them to go and utilize a trusted and popular trading platform. These trusted platforms are often run by well-known companies that have a proven track record of creating a brokerage environment that is trustworthy and has all the technical requirements to sustain high-speed, reliable trading.
Often times, these popular platforms will have highly favorable rates and price plans for new users. In addition, there will be lots of communities of investors and traders that use these popular platforms that may be able to provide help and assistance, as well as opinions on strategy, to new users.
However, this only scrapes the surface of what is online stock trading. Once a reliable trading platform has been chosen, the next step will be to actually start trading shares. This may be through buying specific company shares or selling them.
Which course of action is taken will ultimately be up to the research and strategy of the user of the platform. As mentioned, there are countless ways to make money through online trading, whether it be through such avenues as value investing or through arbitrage trading.
Generally, beginner traders and investors will find that value investing is the best course of action if they are conservative and seeking to try out their first few trades. Value investing simply means looking for companies that have inherent value that isn’t currently overvalued by the market.
What this means is that the company is undervalued and that the overall market hasn’t recognized this yet. This is where the opportunity to make profits arises, as purchasing shares of companies that are undervalued means that they will soon go up in price once the market adjusts. When this occurs, the share price increases and profits will be enjoyed.
Although value investing is recommended for those new to online stocks trading, it by far isn’t a simple process. Almost all share strategies become more complex and difficult as you look deeper into them. For example, value investing is best done by looking at the financial statements that have been provided by a public company as well as external research into the general market.
Looking at the whether or not a company is making any significant profits is a great first step in value investing. Usually, when a company releases its annual report to show that it has made a profit, its share price will go up.
In order to properly ascertain whether or not a company will not only be more profitable than expected, but be undervalued as well, an investor or trader will have to look into the general market that the company is in. In addition, they will have to look at the competitors of the company, and then make an informed judgment about what they think will happen in the future.
This is because, at the end of the day, value investing means making educated judgments about what will happen to a company in the future. If someone judges that a public corporation will be exceedingly profitable in the future after their analysis, they should purchase shares in the company.
On the other end of the spectrum, when it comes to what is online stock trading, are quantitative traders. These individuals do not look at general market directions surrounding a given company.
Rather, generally quantitative traders are concerned about trading volume and trading trends surrounding shares in a given industry or a given company. This is because these traders believe that by looking at trading trends that have occurred in the past, they will be able to make accurate predictions about where the share price will be heading in the future.
For example, there are many different trading trends that these quantitative traders look out for. They will see if there have been any significant and reoccurring patterns in the way a given stock is being traded.
If the pattern is deemed to be reoccurring, then they believe that next time when the same sets of events occur, they will be able to make a profit by being able to foresee movements in the share price before it actually happens. Although grasping what these traders do in theory is somewhat easy, the reality of quantitative trading is perhaps the most technical and difficult field of stock trading.
Quantitative traders often have backgrounds in computer science, engineering and mathematics. This is because the process of identifying patterns within online stock trading markets requires the understanding of heavily technical programming and mathematics.
Such things as stochastic processes are used by these traders to program trading algorithms that will allow them to be more efficient at determining profitable market movements. Many of these traders don’t actually actively trade in the shares; rather they program complex algorithms for specific markets where they are looking to capitalize upon.
One interesting component of the question of what is online stock trading regarding quantitative traders is high-frequency trading, known as HFT. HFT is the process where a trader is able to execute various different buy and sell orders for a given share at speeds of multiple times per second.
The speed of these trades cannot be replicated by a human and are performed by algorithms and computers. HFT strategies involve looking at small patterns that may occur in a split second in markets in order to make a profit. This involves small market inefficiencies where arbitrage profits are available.
Arbitrage profits are not only possible for quantitative traders and can be achieved by other types of online traders as well. Arbitrage profits are seen as one of the most desirable types of profits as they are gains that are achieved without any risk.
This means that the right arbitrage strategy can ensure that someone makes a gain on their trade without them having to take any risk at all. Arbitrage strategies are usually centered on being able to find markets where the buying and selling of a particular stock are inefficient and thus profits without risk can be made.
A common type of arbitrage strategy usually occurs whenever a large and drastic market event occurs. These event-driven arbitrage trading strategies involve capitalizing on the large-scale market inefficiencies that occur when events such as unexpected political or weather events occur.
The huge amount of speculation that results after such an event means that the price for the same share in one brokerage platform may be different from that of another brokerage platform. In this case, an arbitrage trader can exploit the difference in price and make risk free profits.
Another common type of trading strategy that can be used with online stock trading platforms involves shorting the shares of a company. Shorting involves betting that the share price of a given public corporation will start to go down in the future. Essentially, this type of strategy is enforced when a trader believes that a company has negative future prospects and will either become bankrupt or become much smaller in the future.
Using a shorting strategy can be highly profitable, especially when a company sees a drastic fall in the price of their shares. During periods such as the Global Financial Crisis, certain traders within hedge funds and other financial institutions were able to see extraordinary returns through shorting the shares of the companies that ended up taking significant hits or becoming bankrupt during the time.
These strategies turned out to be much more profitable than traditional buying and holding strategies involving shares.
Many online stock trading platforms allow for users to take short bets on given shares. This will allow anyone to make the judgment that a given company will start to see a decline in its price in the future and make profits off of it.
However, investors and traders have to be careful as shorting only allows for profits during times when the share price declines. In the case that the share price increases, then they will have made a loss which may significantly affect their total profit and loss for that day.
Anyone that is looking to be successful at online trading should always be weary of the news surrounding the markets that they are involved in. Even quantitative traders are able to make use of general market news in order to guide how they program the various algorithms that they will be using for the day. There are lots of trustworthy online sources that are available which provide recent and breaking news concerning markets.
The best thing about many of the most popular online resources for news on financial markets is the fact that they are often specialized in various different industries. For example, a given financial resource may specifically provide information concerning shares that are found within the consumer discretionary industry.
On the other hand, another resource may specialize in providing shares that are found in defensive industries or in industrials. Looking into these resources, a user of an online trading platform will be able to be knowledgable about what is currently affecting the markets.
The effect of news on the markets is immensely strong. For example, the CEO of a major company announces that they will be unexpectedly resigning, then the share price of not only the company but companies within the same industry may change significantly.
Hence, being privy to all of the ongoing news will allow anyone practicing online trading to understand why given share price movements occurs. From there, they will be able to formulate strategies that will allow them to capitalize on any kind of market changes that may occur as a result of breaking news.
Furthermore, many equity research firms provide reports that are sometimes free to investors and traders concerning specific industries or specific companies. These equity research reports are usually immensely in-depth, more so than any news outlet.
This is because these reports are written by experienced analysts that have been tracking a given company for years upon years. These researchers spend their careers digging deep into all of the different financials and qualitative factors surrounding an industry or share. From there, they are able to make predictions and recommendations about how the share price or industry will perform in the future.
Generally, users of online stock trading platforms can gain immense benefits from these reports. These reports will almost always have a buy, hold or sell rating on a given share. From there, the report will often have many different pages outlining why they have come to the conclusion of recommending either to buy, hold or sell the share.
The reasoning will almost always include detailed financial predictions that are predicated on the most up to date information available as well as key information that is sometimes only available to the analysts through exclusive programs such as Bloomberg.
Furthermore, when it comes to what is online stock trading, it’s important to understand the vibrant communities behind many online stock trading platforms.
Aside from such things as equity research reports and financial news outlets, many trading platforms will have forums and communities dedicated for its users. These communities will often have a wide range of different individuals ranging from seasoned investors and traders to new users that are looking to make their first trade.
These communities are often famous for having great tight-knit discussions concerning various shares, industries and strategies. For users of online trading platforms, it’s important that they get involved with such communities so that they can be aware of all of the latest developments concerning the platform.
Many times, new features that are available on the trading program can be discussed extensively through these communities. Experienced users will be able to provide support to users that may be unsure or confused about certain strategies and technical features.
As these online trading platforms become more technical, the ability to partake in more markets and more strategies increases. For users that become aware of all of the different ways that they can invest on a platform, they will be able to position themselves to make the most profit. This is because, understanding all of the different strategies to invest and trade on these online platforms will allow for versatile strategies to be created.
Many of the most successful traders on these online trading platforms use a wide range of different strategies that they can easily and quickly adjust and implement.
As the financial markets become more integrated, it’s important that those that are looking to make superior profits are able to act very quickly and swiftly. As more technical ways to invest are invented, the ability of traditional investors to keep up with market fluctuations and opportunities for great profit is weakened.
Because of this, many brokerage businesses have decided to implement highly effective functions in their platforms that allow even novice traders to make use of advanced trading strategies.
This way, they can help their users make the best possible returns while the environment for trading becomes more and more competitive. It’s vital that anyone that is new to an online trading brokerage service understands the full technicals of the features that are available to them.
Ultimately, the second most asked question after what is online stock trading is how to make the most money through trading stocks online. The most successful online traders have often had to deal with countless bad trades and investments in the past.
It’s important that anyone that is seriously considering making a living or a fortune through online trading understand that constantly making superior returns is practically impossible through these platforms. Even some fo the best investors in the world, such as Warren Buffett, have made bad trades and investments.
It’s essential that those looking to make huge profits through online trading understand that making mistakes is just part of being an online trader. What’s most vital is learning from any mistakes made through trading and then applying them in the next trade.
Furthermore, so long as overall profit and loss are positive, then one or two bad trades will not have any significant effect. Being successful at online trading is about the long-term, and being able to provide sustainable profits while refraining from becoming too aggressive, too conservative or thrown off by a given mistake.
Thankfully, all throughout the internet is a wealth of knowledge concerning how some of the best online traders are able to sustain their strategies. Many times, these traders have made huge mistakes in the past and are more than willing to share with the world what they did so that no-one else can repeat the same mistakes they did.
Considering this, it can be said that it’s easier than ever for an online trader to become successful, seeing as they have access to such valuable information from people that have been in their shoes before.
All in all, the answer to what is online stock trading is complex. At its very core, online stock trading is simply the exchange of shares through online brokerage platforms.
However, the process of exchange and the drivers behind these buy and sell orders are immensely complex and highly contentious. Thus, anyone that is looking to make great profits through online stock trading should brace themselves to learn a lot about the financial markets in order to ensure their success.