How To Trade Online: Trading Brokers Guide
What is online trading?
Online trading is when you invest in financial products through an online trading platform. These trading platforms are provided by online brokers that offer a range of different markets and assets for trading online.
When you trade online, you are buying or selling financial instruments and speculating on if the prices will increase or decrease, in order to try and make money from the markets. An online trading broker acts as the intermediary between you the trader and the markets that you are trading.
What can I trade online?
Most online brokers provide a wide range of different markets and asset classes that you can trade online, including:
Forex and stocks are some of the most popular trading instruments amongst online traders. Most brokers will offer a product range that covers a variety of forex and stock instruments. You will also find that there is a large selection of educational videos, books and articles related to these markets online. This also makes them a popular choice for beginner traders. We have compiled a list of our best forex brokers and best stock brokers to help inspire traders looking for a broker to trade online with.
Who can trade online?
Anyone with an internet connection can trade online. There are many online brokerage firms that have enabled online trading via electronic trading platforms for desktop, web and mobile. As technology has improved over the years, more brokers have been established and helped make online trading easily accessible to anyone on the world. You do not need any special qualifications to start trading online.
What do you need to trade online?
All you need to start trading online is a trading account with a broker of your choice. You can then download the online trading platform that they provide and start trading online. If you are looking for an online broker, we have compiled a list of our best online brokers. Most brokers will offer a choice of free to use trading platforms that are user friendly and compatible across multiple devices. If you are looking for a trading platform to trade online with, we also have a detailed guide covering the best trading platforms.
How can I start trading online?
It is simple to start trading online, just follow these simple steps:
- Choose an online trading broker
- Open a trading account
- Download the trading platform
How do I open a trading account?
It’s very easy to open a trading account and start trading online. Once you have chosen a broker to trade online with, you will need to complete a quick and easy registration form. If you are opening a demo trading account you will need to provide some basic information such as name and email address. If you want to open a real trading account you will need to submit some proof of identification which is a normal part of a brokerages KYC procedures. Once your registration has been confirmed, you can launch the trading platform provided by the broker and trade online.
How to choose a broker for trading online?
When you are choosing a broker to open an online trading account with, there are a few important things to consider. If you dont have the time to research brokers, you can see a list of our best online brokers that we have already prepared to help traders. If you would like to know more, please see some of the key broker features to look out for below.
It is usually considered imperative to choose an online broker that is regulated by an authority that ensures the broker is operating according to strict rules and regulations put in place to protect investors. Some of the most respected regulators include but are not limited to the Financial Conduct Authority (FCA) in the United Kingdom, the Australian Securities and Investment Commission (ASIC) and the Cyprus Securities and Exchange Commission (CySEC). Look out for regulatory information on the brokers website and make sure they have a valid registration/license number.
How To Trade Online: Trading Platforms
The broker that you choose to trade online with should provide a selection of trading platforms that you are either already familiar with or those that are the most user friendly. This includes the highly popular MetaTrader platform which most broker will have. If you wish to trade from a specific device, ensure that the trading platforms are compatible. Most trading platforms will be available to use via desktop, directly in web browsers and on iOS/Android mobile devices. If you wish to copy trading signals then you should check that the broker offers social trading platforms. We have compiled a list of our best social trading platforms where you will find a range of different brokers suitable for copying trading signals of other online traders.
Each trading broker and platform will come with a range of trading tools that can help you to analyse the markets for potential trading signals. These tools can also help with planning your trading strategy and money management. If there is a particular tool that you need or you just want as many available as possible, ensure that the broker has them readily available to traders.
How To Trade Online: Trading Instruments
There are many different markets, asset classes and trading instruments available for trading online. It is important to check the broker offers the markets that you wish to trade. If you want to trade forex online, check that your chosen broker has a good selection of forex currency pairs. If you wish to trade stocks online, ensure that they have a wide range of global stocks, including any particular companies or indices that you have an interest in. As you may plan to expand your investment portfolio in the future, it can be useful to choose a brokerage with a variety of different asset classes available to trade online.
Trading Account Types
The majority of brokers will have a selection of online trading accounts to choose from. These are usually provided to cater to the different levels of investment and experience that traders have. If you require a certain trading account type then make sure it is available at the broker in question. Some traders require ECN accounts with tight spreads and fast execution for scalping, other traders may need a direct market access (DMA) account for trading via FIX API. You may need a PAMM/MAMM or signal copying account. Also, ensure that you have the funds available to open a trading account as the minimum deposit can vary from broker to broker, some starting as low as $1, others requiring a minimum $50,000+. Most brokers will offer a free demo account so that you can trade online risk free. This can be a good way for beginners to practice how to trade with virtual money before they open a real trading account.
Trading Account Leverage
Most online brokers will offer leveraged trading. Trading with leverage basically means that you can enter a position larger than you would be able to open without leverage. Whilst this may seem like an attractive proposition to potentially make money trading online, leveraged trading also increases risk. E.g. If your trading account has $1,000 of equity available and your broker offers you 1:50 leverage, you would be able to take a position size of $50,000 (1,000 x 50 = 50,000). You should make sure that you fully understand how leverage works before opening a leveraged trading account and always opt for a leverage that you feel comfortable with as every trader has a different risk appetite.
Broker Spreads & Fees
Online brokers usually make money from the spread and/or commission that the trader pays them for providing online trading services. Broker spreads and fees should be as competitive as possible, the lower the better. You will find that an ECN broker who does not have a dealing desk and does not mark up spreads, will tend to have a tighter spread. A market maker broker on the other hand is likely to take the opposite side of your position and can mark up the spread. However, an ECN broker is likely to charge a commission whereas some non-ECN brokers may not charge a commission on top of the marked-up spread. Check what execution model your chosen broker offers and the fees involved. There may be accounting fees, inactivity fees, overnight fees (swaps/rollover), etc. Make sure you have a clear understanding of all the trading fees involved.
Order Types & Execution Model
How To Trade Online: Broker Models
As mentioned above, different brokers can have different execution models. This means that some brokers will put your orders direct to the markets whereas others may just take the opposite position or process your order through a dealing desk. The main brokerage models to look out for are ECN, STP, DMA and market maker. The model type can affect various factors including trade execution speeds, slippage and spreads. This means that the results of a trading strategy may vary from broker to broker. It is therefore imperative to ensure that you give consideration to the order types and execution models utilised by the brokerage.
If you are a beginner trader and new to trading online, you may want to check if the broker has some educational resources to help you get started and to support you along your journey. The educational materials can cover a range of different topics such as trading platforms, trading strategies, market analysis, money management, trader psychology and more. Look out for tutorial videos, training guides, articles, webinars, seminars, etc.
Trading Account Funding
You will need to fund your trading account to start trading online with real money. Most brokers will offer funding via bank transfer and credit/debit card. If you prefer to use an online payment processor such as Neteller, Skrill or PayPal, check that this is an option offered by the broker you are considering trading online with. Also, make sure that you are aware of any deposit and withdrawal fees that they charge and how long payments take to process.
The customer support team should be available as often as possible. Some brokers even have 24/7 support teams to cater to traders around the globe in different time zones. You may wish to opt for a broker who operates during your trading hours. It can be a good idea to test the response time and effectiveness of the client support team prior to opening an account with a broker. Some traders prefer a broker that has an online chat option as this can often be the quickest way to get in touch with someone who can help. Other methods of contacting a broker will usually be telephone and email. Make sure they offer a method of contact that is suitable to you.
How much money do I need to trade online?
You can start trading online with just $1 depending on the minimum deposit required by the broker. Due to the risks involved with trading online, most brokers will state that you should only ever trade with what you can afford and feel comfortable with. Like any other investment, there is always an element of risk when you trade online.
Can you make money trading online?
Successful online trading can take years of practice and experience. When you trade online you will need to control your emotions whilst having the patience and discipline required to become a successful trader. Having a good online broker can also help to give you an advantage.
Are you ready to start trading online?
Hopefully you have read and understood some of the basic principles of trading online. Once you feel like you are ready to trade online, simply choose an online broker, follow the trading account opening process and you will be able to start trading through one of their provided trading platforms.