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The online stock market offers the opportunity to invest in many financial instruments from anywhere in the world. However, before trading on the stock market, it is advisable to gain knowledge about it and familiarize yourself with its rules. How to take the first steps in the online stock market?
Online stock market – what is it?
An online stock exchange is a virtual marketplace where people meet who want to buy or sell securities. Usually these are stocks, but bonds, investment certificates or derivatives can also be traded (read also: Stocks and bonds). Due to advanced technology, securities can be traded from almost anywhere in the world. You only need to meet 3 basic conditions, that is, have a device with Internet access, an investment account and a certain capital.
How does an online stock market work? Securities listed on the stock exchange can be bought or sold online with the help of a selected broker, who acts as an intermediary. Of course, real money is invested, but the difference is that you don’t talk to anyone about investments, but choose what to buy and what to sell and make the transactions yourself. There are some exceptions, however, as some brokerages offer advice from live brokers and transactions that are supported by him as part of the services offered. This is then included in the monthly fee that is charged for maintaining such an account.
The online stock market is characterized by great convenience, which is why more and more people are interested in making investments there. However, before an investor decides to invest in the online stock market, he should acquire the basics of the stock market game. This way he can operate more effectively and reduce the risk of generating a loss.
How does the stock market work?
The stock market can be compared to a store. Just as in a store, an exchange takes place, but not of goods and services, but of financial instruments. The stock market is a place where individuals and entire institutions can buy and sell securities. All people who start stock market investments online, hope for high profits. They can be earned with interest, dividends or asset growth. Stock exchanges are operated by brokerage houses. All of them must obtain a business license from the FSC. They are in charge of receiving and transmitting orders, both for buying and selling securities, but not only. Brokers also advise on financial issues, as well as on managing an investment portfolio.
First steps in the online stock market
How to start investing in the stock market? This question is asked by most beginners who are thinking about investing in the stock market. Nowadays, playing the stock market online is not much of a problem, at least when it comes to the initial stage. To start investing in the stock market online, you need to open an investment account (read also: Investing in stocks).
Some brokerages allow you to do this without leaving home, by using a computer and Internet access. This is a great convenience that makes the online stock market increasingly popular. However, before filling out an application and opening a brokerage account, a prospective investor should answer a few questions:
- What type of investment account suits him? Individual or joint?
- What brokerage services does the investor want to receive as part of the account services?
- At what level is his knowledge of financial products?
- What are his investment preferences?
Once the investor has answered these questions, he can proceed to fill out an application on the broker’s website (read also: Stock market apps and Apps for investing in the stock market). When he completes it and accepts it, a contract will be delivered to the address indicated by the investor in the application. He must read it, sign it and then send it back to the broker. When all the formalities are completed, the investor can start investing in the stock market over the Internet. Of course, all such formalities can currently be completed online.
How to set up an investment account?
As you know, in order to start investing over the Internet, you need to open a brokerage account. To do this, you need to fill out an application, in which it is necessary to include the following data:
- the type of account that the investor is applying for,
- the brokerage services that he is interested in and wants to purchase,
- personal and address data,
- state of knowledge of financial products,
- investment preferences.
Online investments – depositing money into an investment account
Once an investor has set up an investment account, he can deposit his first money. How much he intends to allocate is entirely up to him and is his individual decision. However, it is worth remembering to invest only free funds, not savings. The online stock market is a precarious way to increase wealth, so it is worth approaching it wisely. Deposits into an investment account are usually made using online banking. This means that the investor must make a bank transfer to the account number provided by the brokerage house.
What can be invested in on the stock market?
The online stock exchange allows you to invest in various financial instruments. The most popular ones are listed below.
Stocks are the most important and by far the most popular financial instruments traded on the stock market. By deciding to buy shares in a certain company, an investor becomes a shareholder, or co-shareholder. As a result, he receives a number of rights, including the right to dividends.
Each share has its own nominal value, which is calculated by dividing the value of the company’s assets by the number of shares issued. Thus, these securities can be purchased at the nominal price at the time of their issuance, or at the market price on the stock market, where it depends on the current price.
These are financial instruments whose value depends on the underlying instrument, such as a currency, commodity, stock, etc. They include, in particular, futures contracts, as well as options, which are traded mainly for speculative purposes, but also treated as a way of hedging against the risk of changes in the price of a financial instrument.
A futures contract is a commitment by 2 parties to complete the translation of buying and selling a certain amount of a basic instrument at a given price on a specific date. An option, on the other hand, provides the investor with the unilateral right to either buy or sell a specific quantity of the underlying instrument at a fixed price on a given date.
These are securities that are issued by investment funds – specialized closed-end, closed-end or mixed. They are indivisible and represent the same property rights. They are also listed on the stock market, so they are subject to daily market valuation in exchange sessions.
An ETF is an investment fund that is listed on an exchange. They are characterized by high liquidity and usually reflect the behavior of a stock market index.
Where do the prices of stocks and other financial instruments come from?
Wanting to start investing in the stock market over the Internet, you need to know how to buy stocks, and understand what their price, or price, depends on. It can be subject to large fluctuations, and this will result in the investor making a lot of money or losing a lot on the purchased shares.
And what does the share price depend on? The share price is actually affected by many factors, and the most important are:
- Demand and supply – if, at a certain point in time, more investors want to sell shares than buy them, the stock price will fall,
- Financial performance of the company – if the company’s profits turn out to be higher than expected, the share price may rise,
- Company activity – an example would be when a company announces new investments, its shares may rise,
- Macroeconomic data – price fluctuations are influenced by announced economic indicators, determining the mood of investors.
Stocks purchased on the stock market can be subject to significant price fluctuations, as their price is often determined by the emotions of the investing public. Therefore, online stock market investment in this type of securities, is considered relatively risky. At any time you can make money on them, but also lose.
Therefore, an investor must keep his hand on the pulse all the time and observe what is happening in the stock market, as well as keep track of the current situation in the market and in a particular company. Fundamental and technical analysis helps with this.
What are stock market indexes and when are they helpful?
The stock market also lists so-called stock market indexes. These are indices that represent changes in the price of a certain group of assets. Typically, commodity indexes and stock indexes are created.
Almost every stock exchange creates such indexes for listed companies. They can take into account the stocks of all companies, but also selected ones, such as those of similar size or representing the same industry.
For what purpose were stock market indexes created? By following their quotations, an investor can more easily assess a particular financial market or its segment, as well as more easily choose an investment strategy. National and world indices are also an underlying instrument for other financial instruments, such as CFDs.
Key world stock market indices include:
- Germany’s DAX30,
- French CAC40,
- American Dow Jones and Nasdaq100,
- Spanish IBEX35.
Investment horizons and instruments of choice
Many people wonder how much money can be made in the online stock market? Much depends on what investment strategy the investor chooses. It is worth remembering that in the case of stock market investments you can not only gain, but also lose, for this reason it is worth investing safely, following certain rules. An important element will certainly be a properly selected investment portfolio.
What to invest in the online stock market? First of all, the investor should determine the investment horizon, as it significantly affects the selection of financial instruments for the portfolio. What is an investment horizon? It is the time of investment, or the period of freezing capital in a particular financial instrument, and can be as follows:
- Short-term – usually lasts 1 year,
- Medium-term – lasts from 1 to 5 years,
- Long-term – lasts more than 5 years.
As a rule, the shorter the investment horizon, the higher the risk associated with the investment. Therefore, when deciding on a short investment horizon, it is advisable to focus on less volatile assets, such as mutual funds with a low risk profile or stocks of companies that have low volatility. More risky instruments with higher volatility, such as ETFs, are worth choosing for a long-term horizon.
Building an investment portfolio is not an easy task, so first of all it is worth considering your investment goals and answering the question – whether a quick buck is more important or a sure profit, as well as what risks an investor can take, i.e. how high a loss he will be able to accept.
Period of boom and bust on the stock market
The stock market via the Internet involves the need to learn certain concepts. The investor has certainly heard that the stock market is not in a bull market or a bull market. How do these two phenomena differ and how to invest in the stock market during them?
It is worth starting with an explanation of what is a bull market? It is a state when the stock market has a long period of rising stock prices. It usually lasts from several months, even up to several years. A bull market is the opposite of a bear market, which is a long-lasting decline in stock prices on the stock market. It is easy to guess what a bull market and a bear market in the stock market entail. A bull market signifies an improvement in the country’s economy, while a bull market heralds a crisis.
How to invest in the stock market when the stock market is in a bull market? It is best to decide to buy stocks at the very beginning of a bull market in order to sell them at a profit at the end of the period. However, an investor must follow the market closely, as every bull market has an end, and after it comes a slump.
How to invest in the online stock market when there is a bull market? Then you need to be very careful, because during a bull market the number of investors decreases, as well as there are periods of panic, amplifying the scale of selling shares and the decline in their prices. It is therefore easy to lose money. The best time to buy stocks is during the final stage of a bull market. Then the bull market, which is approaching, can bring profits.
Online stock market – placing orders
If an investor wants to buy shares, he must place an order. Nowadays he can do this easily via the Internet. The investor’s order will first go to the brokerage house, and from it to the stock exchange. As a result, the investor can save on commission, and at the same time purchase shares quickly. And how to place an order? The investor has a buy order and a sell order. Of course, at the beginning of the journey with the stock market, the investor is interested in buying financial instruments.
In exchange for shares, the investor offers money, and in the case of selling the situation is reversed. In the context of placing orders, it is also important that the investor can use a limit order. So, he can set a maximum price for which he agrees to buy shares or a minimum price for which he decides to sell them. The investor can also choose quite another option, that is, an order at any price.
Online stock market – how to calculate the profit?
How to calculate the profit from online investment? It is not heavily complicated. If the investor manages to sell shares at a higher price than he bought them, to is his profit. However, if the trend is the opposite, the investor will generate a loss. It should be borne in mind that a 19% tax is imposed on the capital gains made on an annual basis.
Costs associated with investing via the Internet
Many people wonder if investing in the stock market online is expensive? Rather not, however, you have to reckon with commissions. In the case of a basic version of the account, in most cases the investor pays about USD 50 per year.
A little more should be paid when the investor depends on access to additional options, such as information services. The next of the fees is a commission, cow is charged by the brokerage house. It is added to each executed transaction. Usually it is 0.39%, but you can meet that the minimum commission is, for example, USD 5.
How much money do I need to start investing in the stock market online?
To start investing in the stock market over the Internet, it is enough to have only USD 100. Already for such an amount you can buy units of stock funds. In such a case, however, it is difficult to expect high profits. Beginner investors usually decide to deposit from several hundred to several thousand dollars. Of course, much depends on the wealth of the portfolio of the person interested in investing in the stock market.
However, it is worth remembering to invest only free amounts that are not needed to meet current needs. What’s more, it’s worth diversifying your investment portfolio, and for this you will already need a slightly higher amount. However, the investor must decide for himself how much he will allocate for online investments (read also: How much can you make in the stock market). One must also reckon with the fact that some of the investments may turn out to be unsuccessful, especially at the very beginning, when the investor does not yet have the necessary experience, although this is not the rule, of course.
Currently, there are many options when it comes to investing in the stock market online. The problem is not to set up an investment account. This is a great convenience, which makes online stock market investments increasingly popular. However, before a person decides to make transactions, he should familiarize himself with the functioning of the stock market.
How to buy stocks online step by step?
After making a deposit in the investment account, the investor can make transactions in the available financial instruments. The following is a step-by-step instruction on how to buy stocks over the Internet, using xStation as an example.
After logging on to the xStation platform, the investor can choose one of the 3,000 available financial instruments. Among them one can find stocks, ETFs or CFDs on indices, stocks, currencies, commodities (read also: Best CFD broker and CFD trading). After selecting the STC tab, the investor receives a list of all available stock markets for XTB users.
To use the “shopping” box, the investor can right-click on the company’s chart. A drop-down list will then appear. The first item at the top is the “new order” box. After clicking on it, the order box will be displayed. Then the investor can choose the type of execution of the order: immediate or pending. The order window also informs the investor what the value of the order is in the currency of the account, as well as in the currency in which the stock is quoted. To execute the transaction, the order placement must be confirmed. Double confirmation avoids accidental order placement. After buying a stock, information regarding the new position will appear in the “open positions” tab.
The investor can also opt for a pending order and the level of execution of the buy and sell order. He can also choose in it how long the order will be active. This gives the investor much more control over the price at which to open the position.
Placing an order that has not yet been executed is in the “pending orders” tab. On the other hand, trades that have already been concluded, but not yet closed, are located in the “open positions” tab.
When to invest in the stock market online?
The main reason why people choose to invest in the stock market online is the hope of multiplying capital. A great scenario is to buy shares in a company at a low price and then, if the overall demand for the stock increases, sell to another person at a higher price. A forex broker helps to make such a transaction, as it uses technology to help direct either a buy or sell order to the stock market.
The answer to the frequently asked question – when to invest in the stock market – is to identify the reason for the change in demand. There are many different situations that affect the demand for stocks, and listed later are the 2 most important ones that every investor should know.
The opening hours of the stock market
To find out when to invest in the stock market, it is important to remember that each stock market has individually defined opening and closing hours, that is, the start and end of trading (read also: Online trading). This means that if a trader wants to buy or sell shares of a company, he must wait until the market opens. If something happens when the markets are closed, the opening of the stock market can often be highly volatile and cause large price fluctuations. This is because investors may be trading for the first time on that day and reacting to the event.
Below are the trading hours for the world’s largest stock markets:
- London Stock Exchange – from 8 am to 4:30 pm local time,
- New York Stock Exchange – from 9:30 am to 4 pm local time,
- Tokyo Stock Exchange – from 9 a.m. to 3 p.m. local time.
A large proportion of active investors or short-term traders focus on trading and investing in the stock market during the first hours about the opening of the market, as this is probably when the most orders or transactions occur.
Economic events and announcements
On any given day, various events take place and various announcements are made that can affect demand for company stocks. Usually, any news that relates to a specific company will have the greatest impact on the share price of the selected company.
For example, the announcement of a new product, an increase in sales or a positive earnings report may encourage investors to buy more shares in the company as a result of receiving signals on when to make investments in the stock market. Conversely, all negative news that is related to sales, scandals, product recalls or accounting errors may lead investors to sell some or all of their positions. In both one situation and the other, the demand for the company’s shares can change, thus causing a large price movement.
Online stock market – how to choose a broker?
In order to place orders and make transactions, an investor must choose an intermediary, such as a broker. It is worth spending some time to analyze at least a few different brokers’ offers and choose the one that will best meet the needs of the investor. What elements should be paid attention to when choosing a good broker?
- Range of financial instruments – it is best to choose to work with a broker that offers access to a wide range of trading instruments, such as CFDs on indices, commodities, ETFs or cryptocurrencies (read also: Investing in cryptocurrencies and The best currency to make money on),
- Different types of trading markets – a reputable broker should offer at least a few different accounts that suit specific trading styles, such as stock markets or leveraged CFDs,
- Spreads – of course, everyone wants to keep trading costs as low as possible, but beware of all sorts of marketing tricks. A low spread that is advertised on a website does not necessarily mean that the broker will always offer it under all market conditions,
- Leverage – online exchanges often offer the opportunity to make leveraged investments. In order to properly manage positions and the account, as well as to prepare a trading strategy, it is important to choose the right leverage,
- Order execution quality and slippage – low fees are certainly a good start, but executing orders at the asking price is an even better deal,
- Scalping ability – the broker should not impose restrictions on trading styles. If a trader is going to do a lot of trading, he should make sure that the broker he has chosen does not have a set minimum time that applies between opening and closing a position,
- Investment platform – a trading platform that allows convenient opening and closing of positions, as well as customization to the investor’s needs is an essential tool. To make online stock market trading smooth, it is worth opting for the most popular platforms, such as Meta Trader 4 or Meta Trader 5,
- Add-ons and custom tools – unique add-ons prepared by brokers very often help to improve the quality of trading. It is worth checking whether the broker offers, for example, social and copy trading, a mobile app, etc.,
- Regulation – it is best to opt for such a broker that is regulated by relevant institutions, such as the FSA, FCA or CySEC. After all, the investor entrusts the broker with his money, so security should come first,
- Customer service – should be of a high standard and offered in the language the investor speaks best. So if he is not fluent in English, he should opt for a broker or one that offers assistance and customer service in his language,
- Training and education section – in addition to providing the broker with the opportunity to make investments, the broker also provides the opportunity to gain valuable knowledge of the online stock market and more. The best brokers, as part of the offer to maintain an investment account, also offer the opportunity to use the educational section, which is often very extensive. It is worth checking in advance what educational materials the selected broker offers.
Playing the stock market online – what to pay attention to?
When playing the stock market, market analysis is essential. It can be divided into two types – technical analysis and fundamental analysis.
This method involves estimating and calculating the prices of securities. This is done on the basis of historical prices. This allows you to estimate the best times to buy or sell financial instruments.
This method is based on the Dow theory. It relies on the fact that the price is the result of all factors, affecting the market. It also says that the price change depends on certain trends, and that the price trend of the past can happen again in the present.
When doing your analysis, before playing the stock market, you should focus on, among other things:
- observation of a specific economic sector,
- observation of the condition of a specific company,
- observation of the macro environment,
- valuation of a specific enterprise.
What should you keep in mind? About not investing money that is intended for current expenses and under no circumstances borrow money to trade in the online stock market. Only free money should be invested, the loss of which will not affect the investor’s household budget.
It is also necessary to spend some time comparing brokers or use ready tools in the form of rankings of the best brokers on the market. A good broker can significantly support the trader’s investments, while an inadequate one can, for example, delay the trader’s movements, and this can translate into generating a loss.
Read also: Online stock market simulator
Before signing a contract with a broker, you also need to familiarize yourself with the terms it offers and read the contract carefully. This way the investor will not be surprised by anything and will be clear about the transaction costs.
Ways to invest in the stock market online
Investing in the stock market via the Internet is one way of investing money. Over the Internet you can invest in CFDs, such as in:
- currencies (read also: How to invest in currencies online),
- stocks (read also: How to invest in stocks),
- ETFs (Exchange-Traded Funds),
Investing over the Internet in Forex, is much better compared to investing in the stock market. In particular, because you can play according to, for example, a daytrading strategy. In this case, by betting on small amounts and closing trades on the same day, with small amounts you can rack up a substantial profit (read also: How to invest small amounts of money). What is important, however, is that investors do not have to spend too much time following indicators, company balance sheets, reports and fundamental analysis, since the most important determinant is the price change.
On the other hand, investing online in CFDs also has the advantage that investors can use leverage, which allows them to make more profit. However, it is important to remember that leverage is also associated with high risk. Investing in the stock market over the Internet is not only a great convenience, quick access and a relatively new way to invest funds, but also a world of interconnected markets where everything changes in a dynamic way.
Online stock market – 4 simple rules to remember
As already mentioned, before an investor starts playing the stock market, he or she needs to gain knowledge about investing. Buying and selling securities can be a good way to multiply your savings or even a way of life, however, if you know which stocks to invest in. The online stock market is also a place for people with strong nerves, so there are a few important things to keep in mind:
- Discipline – the effectiveness of the investments made largely depends on the investor’s discipline. It is often more important than the investment strategy itself, because it puts the investor one step ahead of the other participants in the stock market,
- Acceptance – this is also an important principle. An investor, especially a beginner, should accept that at the very beginning investing in the online stock market will bring losses. This trait is also very important for more experienced players, because sometimes it is better to withdraw from an investment and lose on it than to be stuck in it for many months,
- Plan – investors often forget or downplay this. Before you start investing, you should set your own plan, and while playing the stock market – stick to it. This is what being able to control your emotions while making investments allows you to do,
- Turning off emotions – for most this is the most difficult to do, and even professional investors have problems with this. Of course, sudden drops and increases in the stock market cause different emotions, but the decisions that investors make should be well thought out and not be the result of acting under the influence of emotions. This is the only way to make rational decisions when it comes to investing in the online stock market,
- Diversification of investment portfolio – for newcomers this concept may seem very complicated, but it is nothing difficult. Diversification of the investment portfolio consists in the fact that the investor invests his capital in various financial instruments, instead of exclusively in one asset. The idea is not to allocate all the capital exclusively to the shares of one company, but to choose at least several different ones – similarly for other financial instruments. This minimizes investment risk, which is associated with loss of capital. When the price of one stock falls, the investor does not lose all his money, as he has it invested in other financial instruments as well,
- Learning – investing in the stock market via the Internet involves a constant deepening of knowledge about it. The investor can gain knowledge from various sources, including online ones. He can also opt for a course on investing in the stock market. Such training courses are available both online and onsite, so one can choose the form that best suits the investor’s preferences. Also, brokers offer extensive training sections that can be used as part of an investment account.
Nowadays, the online stock market stands open to basically everyone. To start investing online, all you have to do is open an investment account, make a minimum initial deposit and start making trades. However, the fact that the stock market is characterized by great accessibility does not mean that it is easy to make money on it (read also: How to make money in stocks). First of all, you need to gain knowledge of how the stock market works and gain some experience to be able to generate profits. The choice of broker is also not insignificant, as it is significantly able to help the investor make investments.