Millions of people trade stocks online, some as a full-time avocation and others as a side-job or occasional activity. For those who are new to buying and selling, it’s important to find out about the pros and cons of trading before jumping into the endeavor unprepared. Do you need a license to buy and sell stocks? What about brokerage fees? How does day trading work? What are the common errors people make when they trade via their computer terminal?
Licenses
You don’t need any licenses to buy and sell securities unless you intend to act as on behalf of others. In that case, you’ll need a standard brokerage license and will need to register with the state authorities where you live. But for the huge majority of at-home investors, there are no licenses required at all. You simply need to educate yourself about how to buy and sell. Much of your self-education can take place on a simulator, which is an app that lets you use fake money in order to practice buying and selling. Most online investors spend many hours on a sim unit, learning the ins and outs of the profession.
Day Trading
If you gain enough experience in the market and develop a keen ability to make fast purchases and sales of securities, you might consider becoming a day trader. These full-time professionals put their own money at risk but rarely hold any stock overnight. Their goal is to make very small per-share profits on large purchases of securities. One thing you need to know about is the pattern day trader rule.
It’s a government regulation that forces you to keep at least $25,000 in a margin account if you want to be a day trader. Some people can’t afford to put that much money into the business and thus should consider another form of trading. But if you are dead-set on day trading and can afford to fund a margin account, then you’ll be able to abide by the pattern day trader rule with ease.
Fees
It’s up to you to find out about brokerage fees. Keep in mind that while there are many reputable online brokers, their fee structures vary considerably. Some are geared toward options traders and offer low fees to people who operate in those markets. Every trading app has its own nuances when it comes to fees, so be sure to do careful price comparisons when you are shopping for a broker that suits your particular needs. Most brokers are finicky about penny stocks, for example, so if that’s your area of interest, you’ll have to do a bit of hunting to find a brokerage.
Common Errors
The most common mistake online traders make is spending too much money when they start out. There’s a good rule of thumb that many experienced professionals follow, to never commit more than two percent of your available cash to a single transaction. So, if your account is funded with $4,000 of capital, you shouldn’t be making individual buys that exceed $80. It’s a smart way of preserving your funds and surviving the ups and downs of the market.
