Financial Trading Gurus at their best. Join the eToro Guru Program
Error
  • Error loading feed data

Learn

5 Useful Online Trading Tips

Markets move rapidly and online traders have to make quick decisions when profit making opportunities arise. Online trading has challenges that can lead to unforeseen losses in a short period of time. These useful tips prepare you for the unexpected, enhancing successful trade outcomes.

 

1. Online Trading is Quick but Not Easy

Online traders have instant access to their accounts and execution of trades. With a mouse click, one can trade in any financial market through numerous online brokers available globally. This convenience and associated risks makes it a necessity for traders and investors to have strategy guided decisions and rules in place that protects precious capital.

One can enter and exit a trade in seconds, but making consistently profitable trades takes time, wisdom and good decisions. Research and analyse every opportunity well to find and make good trades. Although online trading saves time, it does not mean it is easy. 

 Before every trade, know exactly why you are buying or selling and the risks involved in taking that position. 

 

2. Technology Risks

Technology problems can occur at any time. The risk is slowing or preventing orders from being processed. Management of open positions is also hindered. Even exchanges and brokers have system glitches, inadequate technology and unexpected downtime.

These factors are largely out of one's control and can cause losses if already in a position. A further downside is having technology issues when one is about to enter a well-timed trade after extensive research and study.

Enquire whether your broker:

  • Sufficently invests in the latest technology

  • Has backup servers and conducts routine maintenance

  • Has policies to resolve client's trades that were negatively impacted by sytem problems

  • Has a client support center and live contact is available at convenient times

  • Provides alternative means of contact e.g. email, phone, fax, office address

  • Has a good track record of low downtime over the last few years

 

Make a note of all broker alternatives and options for placing and managing trades in case of emergencies. It is helpful when one cannot access their account online.

 " Be aware of every alternative your broker offers in the event of unforeseeable circumstances and the related costs of these options. " 

Broker technology is capital intensive and low cost firms may not have the resources to sustain it. Use established and reputable brokers to benefit from a stable trading environment that reduces these risks. 

Your home or office trading desk is also vulnerable to unexpected technology risks e.g.:

  • Power failures
  • Disrupted internet connections
  • Software viruses
  • Outdated operating systems
  • Malfunctioning modems, computers and mobile devices

 

Have contingency plans for these scenarios. Trade only when these are in place. 

 

3. Market or Limit Orders?

Market orders buy and sell at the prevailing market price. With market orders, the trader has no control over the price at which the order gets filled. Entries and exits are subject to slippage of varying proportions, depending on market liquidity at time of trade. Market orders are useful for getting into and out of a trade immediately.

With limit orders one specifies the entry and exit price. It is favourable for traders because it prevents buying or selling at higher or lower prices. Limit orders trigger at a specific price or better. Buy limit orders are executed at the limit price or lower. Sell limit orders are executed at the limit price or higher. 

For example, an instrument is trading at price X. A trader wants to buy, but feels it is only worth paying price Y i.e. Y is a price lower than X. A limit buy order is placed at price Y. This means the order will be filled at a maximum price of Y. In contrast, a market order could have resulted in an entry price much higher than X or Y. This has a dramatic effect on profits over time.

Where possible, place limit rather than market orders for trades.  

 

By placing limit orders, a trader is protected from buying and selling at unwanted prices. 

 

 


 

 

 

4. Place an Order Once, not Twice

Placing orders online can have time lags, sometimes taking several minutes to confirm the trade. If an order is placed and no immediate confirmation is received, do not assume it did not go through. Traders sometimes get overly anxious after the entry mouse click, unintentionally placing a second order in haste thinking the first order was not executed.

Technology issues and low market liquidity can delay order confirmation. Patience is important, one develops a feel for average waiting times with a particular broker only through experience and taking many trades. 

Ask your broker about the relevant steps to take when unsure about the execution status of an order

 

When cancelling an order, ensure it is confirmed before placing the next trade. An order can only be cancelled if it was not executed as yet.

  

 Ask your broker about how to confirm order cancellations. 

 

5. Margin Calls

Brokers can close and liquidate client positions without a margin call when trading accounts incur large losses. Brokers use margin calls as a client courtesy. They are under no obligation to contact the account holder before executing exits on the client's behalf.

Review the broker's terms and conditions before opening an account. Understand the margin rules and pay attention to the agreement fine-print before signing. Clarify clauses with the broker where necessary

" Successful traders are familiar with important aspects influencing their trading account such as broker policies, procedures and rules. "

 

Brokers are obligated to do what is best to protect the client and themselves from major losses. They can act if the market moves even when a client may have been allowed time to transfer cash to meet the margin call.

In rapidly changing markets, brokers can liquidate an entire account at a substantial loss because the client's positions significantly declined in value.

 

6. Conclusion

These are some of the pitfalls involved with online trading. Selecting the right broker is imperative to trading success. It is an integral component of risk management.

Use these tips to improve your online trading success. Planning ahead to meet the challenges presented will prove invaluable in the long run. 

 

 

Additional information