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Through online trading, you can easily buy or sell thousands of stocks. Orders are routed through the brokers online system to the particular stock exchange and executed within a few seconds, usually without any manual intervention.

Online investing is different from day trading. In day trading, an individual buys and sells shares in a very short period of time, within the same day in most of the cases, in order to gain from marginal movement in the securities.

Risks of Online Trading

If you are a new investor, you should be aware of the principles of investing, your investment goals and risk tolerance before entering into online trading. Being an online trader you may tempt you to trade very frequently or to be involved in over trading, which would result in increase in trading costs, complication in your tax related conditions and large losses.

Despite some limitations, online trading has improved the way stocks and other investment instruments, such as, bonds, mutual funds and currencies, are being traded, substantially, in the fast moving capital markets. So, should you should be a trader or an investor?

Being a Trader

Normally, short-term traders including day traders, who are also called market timers, do not gain profits from their investments consistently, since their investments are not based on the companies? fundamentals. Short term traders sit in front of their computer terminals throughout the day to see the movement of the particular stock. Day traders usually buy stocks on borrowed money to make quick profits, however, they bear very high risks of losing money. If you are a day trader, you should risk that amount of money which you can afford to lose. Short term traders do not ?invest? generally, since they are riding on the momentum on the particular stock, by seeing the charts. They do not research or look into the fundamentals.

Being an Investor

Investors generally look into the fundamentals of a particular stock, such as revenue growth, earnings growth, cash flows, debts and rate of returns etc, before investing into Read more…

Indeed, online trading has revolutionalised the way common folks like you and me trade
in the capital markets.

Online trading has its pros and cons. Online trading?s main pro is convenience and speed, giving a trader maximum control of all aspects of trading. Conversely, online trading?s main killer con is in the tons of human error that can happen due to a lack of guidance.

Due to a lack of guidance, most online traders find themselves extremely prone to their emotions when trading online. When they feel the urge to get out of a position simply because their emotions are all fired up, they can at the simple click of a mouse. This has led to a lot of failed trades and a lot of lost money…. The only way anyone can succeed in online trading in the long run is through a disciplined trading regime based on a fix trading system or what we called ?System Trading?.

System trading means that you pick stocks based on a fixed criteria, enter on a fix
criteria and exit on fixed criteria… all put together nicely like different parts of
a car. With system trading and a fixed portfolio management policy can anyone truly
attain success in online trading.

System trading aims to take the emotion Read more…

The concept of investing is as old as business commerce itself. In its purest form, an investor supplies the capital (money) needed by a business concern, and in return, the business concern grants the investor an ownership stake in the business, or ?shares.? Under such an arrangement, both parties are hoping that the business will grow in value; hence the investor?s stake grows in value as well.

One form of business investment occurs when a corporation offers a portion of its stock to the public (?IPO,? Initial Public Offering). Such offerings usually raise millions ? or even billions of dollars of capital. In return, the investors who have purchased the stock each own a piece of the company?s equity.
Stock trading differs from investing when you consider that trading (for profit) relies on the fluctuations of the stock value itself. Investing, on the other hand, relies on the growth of the company who has issued the stock.

For instance, let?s say that Joe Investor purchases 1,000 shares of a company?s Initial Public Offering for $10 per share. Joe is thinking that this is an excellent investment since the company is expected to grow by a factor of 20 during the several years. If this pans out, his initial $10,000 investment will be worth approximately $200,000.

Now let?s say that the word gets out about this company, it?s future is looking quite promising, and suddenly everyone wants ?in.? Because of the high demand for the stock, it is driven up to $20, then to $40. Other investors notice the new ?hot? stock issue, and in a mad buying frenzy its price is driven up to $100 within a matter of days.

What just happened? The company hasn?t changed, it hasn?t made one penny, and it hasn?t expanded. Yet, Joe?s initial $10,000 investment is now worth $100,000! If Joe wanted to, he could sell his shares right now for a 10-to-1 gain rather than wait for many years to (maybe) realize his goal of a 20-to-1 gain.

Probably, Joe will sell. In this case, he has made a trade ? trading the stock for cash. His profit, while large, did not result from the underlying company?s success, but rather his profit is purely the result of investor speculation. Additionally, those who bought Joe?s shares could turn around and sell them to someone else, again, another trade. This is the fundamental difference between investing and trading.

Nonetheless, the terms investing and trading have come to mean the length of time that one intends to hold on to stock. Today, the terms investing and trading are used almost interchangeably ? with the distinction of time. One is ?investing? if the buyer of stock intends to hold on for a long period of time; one is ?trading? if the stock is held for a very short period of time.
This distinction is important to understand more from a philosophical point of view than a technical one. For whatever reason, the activity of ?trading? is considered politically incorrect by the mainstream media. Some anti-trading advocates go so far as to imply gambling addiction and other questionable morality associated to ?trading.?

Yet, in today?s market, every stock purchase is, in fact, a trade. Unless one is participating in an Initial Public Offering, not one penny of a stock purchase goes into the company, so one isn?t really investing at all. They are all trades, albeit some of them with longer time horizons than others.

In spite of its social taboo, trading differs in ?investing? only in technique. Both the trader and investor share the same goal – to profit. While convincing arguments can be constructed for both techniques, the point is that ?moral? implications about trading should not be a factor and need not be part of the debate.

Long-term investing advocates are quick to point out that many people have lost fortunes in day-trading and other forms of stock market ?gambling,? hence its ill repute. On the other hand, the ?investor? is certainly not immune from Read more…

Many traders lose simply out of ignorance. They base their trades on hunches, news, or tips from friends, and do not define specific risk and profit objectives before placing trades.

Others have the merit of educating themselves but fall victims of their emotions. They hold on to losing positions hoping they will turn into winners and sell winners by fear of losing a small gain. They overtrade to fulfill a need for action or by fear of missing out.

The consistent winners follow a winning approach:

They have a strategy to enter and exit trades

They use good money management

They take consistent actions, they follow a trading plan

They keep good records so they can review their actions

They avoid overtrading

They have a winning attitude

Trading Framework was designed to help you build those crucial elements into your trading.

A strategy to enter and exit trades

You need to a strategy to put the odds in your favor for each trade you take. Your strategy should be as objective as possible and include the following elements:

Entry: conditions required before you can enter a trade – may include technical analysis, fundamental analysis, or both.

Initial stop loss: price at which you will close the entire position if it does not go in your favor.

The risk per share is the difference between the entry price and the initial stop.

Initial price objective: price at which you will take some or all profits if the trade goes in your favor.

Trade management: set of rules that dictates your actions while a trade is opened. It may include trailing stops, closing position, etc?

For every action you take, the reason should be clearly described in your strategy.

Example: Buy pullback – stock in an uptrend on daily chart

Entry

Setup: Price above rising 30 day moving average with 3 or more consecutive days with lower highs

Buy signal: $0.05 above the previous day?s high

Initial stop

Below lowest of previous and current day?s low

Initial objective

At the previous pivot high – sell half

Trade management

Move stop below previous day’s low daily

A more complete strategy would include market and industries conditions, technical indicators, conditions from different timeframes, etc..

Money management rules to keep losses small

The goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following:

Maximum amount at risk for each trade. The different between your entry price and your initial stop loss is your risk per share. Your maximum amount at risk for each trade determines the share size.

Maximum amount at risk for all your opened positions.

Maximum daily and weekly amount lost before you stop trading ? avoid trying to trade your way out of a hole after a loosing streaks.

Example:

Maximum amount at risk for each trade: $200

Maximum total amount at risk for all my opened positions: $800

I stop trading until the following day if my realized loss for that day is over $600

I stop trading until the following week if my realized loss for that week is over $1000

During your learning phase, your goal should be to survive, not to make money. Start with low limits and raise them as you become a consistent winner otherwise you will simply go broke faster.

Good record keeping

Although the process of gaining experience cannot be rushed, it can be made much more efficient by keeping good records of your actions. Good records will allow you to:

Review your actions at the end of each day to make sure you followed you strategy, not your emotions.

Learn from your losses ? they cost you money, make sure you get the education in return.

You should also keep a journal of your observations.

A trading plan to keep emotions out of your decisions

During trading hours, emotions will turn smart people into idiots. Therefore you have to avoid having to make decisions during Read more…

People love to be secure and in most cases they like to be able to foresee things at least to a minimum degree. At the same time however they want to make a profit; the more, the better. And unfortunately high profits are usually accompanied by high risk. Feel the dilemma here? Of course, one solution to this dilemma would be to simply put your money in a savings account, collect a little interest and just relax. If this sounds good to you, well, good for you, but don’t bother reading the rest of this article.

Which means that if you’re reading this, you’re probably not satisfied with the meager returns from today’s savings accounts and you want to let your money work just a little harder for you. But you would still like to minimize your uncertainty right? Let me give you a prediction with a very high degree of certainty.

If you invest in the stock market you will inevitably:
– make money some times
– lose money some times

That should at least cover the uncertainty factor. Perhaps this sounds a bit simplistic and if it does, good, it should. Because the point I am trying to make is very simple. You just can’t make money every single time you make a transaction. Even Warren Buffet did not make money on every investment he has ever made. The best investors and traders in the world lose money on a certain number of their transactions. So don’t get too hung up when it happens to you.

Fortunately it’s very hard to lose money every time you invest. Perhaps you could find some people who claim that they lost on every investment they’ve ever made, but chances are they are not telling you the truth. Even they have made money on some of their transactions. However they probably re-invested that money into other stocks that ended up losing money. It’s a lot like the guy sitting at the slot machines. After playing for a while the machine starts chucking out a whole bunch of coins resulting in a nice profit. But instead of calling it a day and taking his winnings home, the guy simply keeps pouring money into the machine until the very last coin. Then he goes home wondering why good luck never comes his way.

It’s important to face the reality of losing some money from time to time and be ok with it. This does not mean that you should feel ok every time you lose money. Your goal should always be to make a profit. Just be aware of the fact that you can’t realistically expect to make a profit every single time. This will ease some of the fears of failing, since losing money on an investment doesn’t mean you have failed as an investor. Many people never get started just because they’re afraid of losing money. And if they do lose money, they feel they have failed and retreat from the stock market in its entirety, never to return again.

If this hasn’t happened to you personally yet, just look around. Can you Read more…

Easy access to investing information and the availability of online trading has made life much more enjoyable and less costly for do-it-yourself investors. The Internet has brought the “trading” desk to millions of households and it is now possible to buy and sell shares, options, warrants, interest rate securities and managed funds from your own home. All you need is a computer and an internet connection. In addition, you can do your own research on a particular company or fund manager as well as finding out what some stock brokers are recommending to their clients. Much of this information is free or available at a reasonable cost and you can save yourself hundreds, or even thousands of dollars in fees and commissions every year via the internet. Rather than go through a full service stockbroker or investment advisor, why not give it a try?

When building your own stock portfolio, here are some pitfalls you need to avoid!

While you can find a plethora of good information on stocks, you can also find very poor information. Each website claims to have the latest hot picks or the “top ten” stock buys and often they contradict each other. Who do you believe and what about the scams?

You will undoubtedly come across websites and chat rooms that give investment advice or tips about investments, but many of these are not qualified to do so. The information may be wrong or misleading and some websites even repeat incorrect rumors.

There is overwhelming evidence that you will not become rich by listening to the advice of others. As an investor you need raw information, not recommendations. You would not buy a car just by looking at it…nor should you buy a company’s stock without doing significant research. There is no point trying to take control of your finances if you are going to rely solely on a “tip” from a newspaper or a broker or an internet chat room. It is true that someone may know more about a particular company or stock than you, but they could easily be wrong – so do your own homework!

You need to be certain that you have sound reasons for investing in a particular company. Does the company have an instantly recognizable name? Do you understand what the company does? Do the products or services of the company stand a good chance of being in high demand in a 10, 20 or 30 year time frame? Does it have a management team that moves with the times and is innovative, yet keeps a firm grip on the company’s finances? Most of this information is available in a company’s Annual Report, but make sure that you read it with a degree of skepticism…most reports are written to promote the company.

In the Annual Report, the financial statements, the balance sheet, the profit

Rolling is defined in options online trading as moving a position from one strike to another either vertically in the same month, horizontally to another month or some combination thereof.

Other times, you may have to buy your short call back so that you will not lose your stock. Sometimes, you may even want to allow the stock to be called away if you have decided that the stock has reached a level were you want to take your profits and begin to look for another opportunity.

The term roll means to move your position either out to the next strike or to move your position up or down a strike in the same month. The term roll means to move.

Rolling is normally done via time spread and/or vertical spreads. Without getting into the trading of spreads, which is a unique strategy in itself and a topic for future Options University courses, we will talk a little about the roll.

As stated before, the covered call strategy is most effective when executed month in and month out over an extended period of time.

In order to do this, an online trading investor must re-initiate the position every month at the option?s expiration. The re-initiation of the position every month is where the term rolling comes from. However, there may be times when you may want to give yourself a little more upside room for capital appreciation. In those rare cases, you will not want to roll the position, because it might be called away if the call you sold is exercised when it becomes in the money.

When an option?s expiration approaches, your short option can either be in-the-money or out-of-the-money. As we discuss the two potential outcomes, let?s first assume that we want to hold onto our stock.

If the option is going to finish out of the money, you would let it expire worthless and then sell the next month?s call. If the option is going to expire in-the-money and you want to keep the stock you will need to buy the short option back and sell the next month?s call.

This trade will consist of two online trading options. You will be buying one option and selling another, which is commonly known as a spread Read more…

The one thing I can think of that most affects both trading and investing has to be self-discipline.

Being disciplined is fully 50% of the job of trading or of investing. I don’t care how good your trading system is, without the discipline needed to follow the system you don’t have much of a chance for success in meeting your goals.

It doesn’t matter how great a planner or organizer you are, without discipline your plans will most likely fail to bear fruit.
Discipline involves self-control, and self-control involves your ego. If you want to succeed, you must learn to trade without your ego getting in the way.

Don’t be fooled. A person’s self image must be separated from his trading or his investing. When personal self-worth gets tangled up with your business activities, it not only wrecks your best trading or investing intentions, but it also damages your self-esteem.

You hear and read about great traders and investors who have done amazing things. They tell about how great they are. They talk about “The Big” trades they made. They talk about “Big” numbers. It all derives from their oversized egos.

Don’t be misled. Sooner or later, there are “Big Downfalls.” It goes with the territory.

For a moment, let’s look at the results of what a huge ego can do. Due to his oversized ego, Nick Leeson brought down the Barings Bank. Victor Niederhoffer ran his fund into deficit. John Merriweather was so sure his strategies would work that he ended up threatening the health of the entire banking system by betting more than fifty times his capital that he could forecast, without any chance of a loss, the direction of various bond markets.

As we study the examples of these three men, there seems to be a pattern of temporary real success followed by a collapse for themselves and for those caught up in blindly following them.

Here are the kinds of problems that arise from putting your ego into the mix.

- Not putting in stops: You don’t want to be proven wrong.

- Hesitation before entry: You want reassurance before you act.

- Overtrading: You want to prove how really big you are.

- Not getting out when you should: You have married your trade and just don’t want to get a divorce. Getting out would mean you were wrong.

- Adding to a losing trade: You are making a massive effort to prove you were originally right.

- Grabbing a profit too soon: You want affirmation that you did the right thing.

- Missing an opportunity because you can’t pull the trigger on a trade: You are still living with past mistakes.

In my 47 years of trading, I have seen great traders and investors come and go. All too many of them lost everything they had ever made. The great W.D. Gann died a pauper. The legendary Jess Livermore was flat broke when he committed suicide.

I have known dozens of traders who lost money because their egos got in the way.

I agree 100% with the following statement by Marty Schwartz, the great S

The internet! Oh what a great invention. The invention of the internet has brought about many changes in the way that we conduct our lives and even our personal business. We can pay our bills, shop, bank, and even meet our soul mate by dating online!

Due to the progress that we have managed to achieve in this world, we can even buy and sell stocks online. Traders love having the ability to look at their accounts whenever they want to (I know I do it all the time), and brokers like having the ability to take orders over the Internet, as opposed to the telephone.

I remember before the option of being able to trade online, whenever I wanted to buy or sell stocks I would have to call up my personal broker to place a trade. Now all I have to do is log into my online trading account, and I able to trade stocks, options, currencies and bonds.

Most brokers and brokerage houses now offer online trading as an option to their clients. Another great thing about online trading is that the fees and commissions are often a lot lower. While online trading has it?s pros, as usual there are cons as well.

If you are new to investing, sometimes having the ability to actually speak to your broker can be very beneficial. Or if you aren?t as stock market savvy, online trading may be a dangerous thing for you. If this is the case, make sure that you educate yourself as much as you can about option trading or whichever investment field you?re interested in before you start trading online.

You should take into consideration that if you don?t easily have access to a computer with an internet connection, you won?t always have the ability to go online to make Read more…

Trading bonds can seem a bit difficult compare to stocks, because there’s no central exchange for trading bonds. Still, once you learn what you’re doing, trading bonds becomes a lot easier.

To start, you need a brokerage account. It’s your choice whether you go with a full-service broker or an online trading account. Possibly your own level of experience may help you to make that choice. Make sure you understand what the account requires you to do in order to place an order. You don’t want to find yourself needing to place an order but unable to do so because you’re traveling and don’t have internet access, as an example.

Bonds have a purchase price, a sale price, and also an interest rate. If you purchase one, you (as the bondholder) are entitled to payment of the principal when the bond matures, as well as interest payments twice a year.

In the same way as stocks, the prices of bonds vary. When a bond is first issue, its initial price and interest rate are set. From then on, the market dictates what they’re worth, and whether it’s higher or lower than it was when issued. General market interest rates have a major impact on the movement of bond prices. If the interest rates on bank loans, real estate mortgages, and savings accounts drop after the issue of the bond, then the bond’s price will tend to rise.

This isn’t had to understand. If you’re holding a bond that was issued that pays at an interest rate of 7%, and cash deposits drop to a return of 6%, then naturally your bond will be worth more and its price will rise. Basically, your bond pays more in interest than a competing investment. As to how much they’re likely to rise, well, that’s a lot more complex, and certainly outside the scope of this article.

A common expression in bonds trading is ‘over 100′, which means that a bond is trading at a premium to its issue price, and bonds that are ‘under 10′ are trading at a discount. The 100 refers to 100%, where 100% is the initial price.

Like all investments, bonds have a risk factor. If a company goes bankrupt, bondholders do Read more…