Whether you are looking to grow your wealth or diversify your investments, stock trading is a good way to do so.
If done correctly, you can profit both in long term with stock investment and short term with stock trading.
Companies flucate in value all the time, hour by hour and minute by minute. While the financials of the company may be solid, the opinion of the masses may cause it to become under-valued. And that’s a unique oppertunity to make a profit!
But of course, your success will depend on a number of factors, such as your experience, knowledge, access to information and the stockbroking platform you use.
In this article we are going to look at this in detail.
Getting Started With Stock Trading
When you buy a stock, you are buying a piece of ownership in the company. By purchasing a stock you believe that the particular company will increase its earnings and profitability in the future.
There are two main ways to make money from stock trading:
- An increase in stock price. This is referred to as a capital gain, and occurs when you buy a stock at a lower price and then sell it at a higher price on a later date.
- A share in the company’s profits, which is referred to as a dividend payment.
The next step is to choose the right stockbroker or stockbroking platform.
Types of Stockbrokers & Stockbroking Platforms
There are different types of stockbrokers and stockbroking platforms that you can choose from. Each type have their own advantages and disadvantages, and the type you end up selecting will depend on your goals and circumstances.
Here are the 3 main types of brokers:
Full Service Broker – this type of broker will be able to give recommendations and advice on the type of stocks you should invest in. They will do research and analysis on your behalf before making recommendations, so you will be able to leverage this expertise if you are not a sophisticated investor, or if you don’t have the time to do the research yourself. Full service brokers tend to be the most expensive.
Discount Broker – this type of broker may give you a list of recommended stocks, but you are left to do your own research and analysis on these stocks.
Online Broker – the internet has blurred the lines between discount/online broker as these are starting to become synonymous with one another. However, online brokers can range from plain vanilla platforms to highly sophisticated stockbroking platforms.
Things To Consider When Choosing A Stockbroking Platform
Here are some things that will help you choose the ideal stockbroking platform for your own circumstances:
Fees – Brokers will charge a flat brokerage fee for buying & selling transactions. Other brokers may charge a percentage of the value of your trade.
Assets available for trading – some stockbroking platforms may only give you access to domestic stocks, while others may give you access to international stocks. Others may also give you access to other asset classes such as foreign exchange, CFDs, bonds and more.
Is the platform easy to use? – stock trading requires you to respond quickly to changes in price and so a platform that is intuitive can be beneficial to your stock trading efforts.
Access to market data – If you are a day-trader you will need access to live market data, whereas casual buy and hold investors may not need such a sophisticated trading platform.
Research – Online brokers have now become much more sophisticated, providing research and analysis as part of their offering. These things can be helpful in making decisions with your stock trading.
Customer Support – Does the stockbroking platform provide 24/7 support? Especially since markets are open in different time-zones and you may need support if anything goes wrong.
A reputable stockbroking platform that includes all of the above features is CMC Markets.
Benefits of Using A Stockbroking Platform
- You have direct control over your own investments: stockbroking platforms give you
- Convenience: you can control your portfolio from the comfort of your own home, or anywhere with a laptop and internet connection.
- Affordability: the highly competitive online brokerage industry has meant that clients have more features available and lower brokerage fees.
Disadvantages of Using A Stockbroking Platform
- You are relying on your own expertise – although stockbroking platforms allow you to take control over your trading, if you are not knowledgeable you could potentially risk losses.
- You may be tempted to take risks – the ease of placing trades may mean you take unnecessary risks because it is so simple to do so.
- Human error – Since you place your own trades, you need to be careful of making typos and potentially making a mistake.
Stockbroking platforms provide a convenient way to place trades, and monitor your portfolio. Make sure to check the features suit your circumstances and be wary of the fees that they may charge.
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