Online Investing Daily

Definition Of Day Trading

If you buy stocks on a particular day and also sell them again before the market closes you could be said to be indulging in day trading. It was earlier felt that only investment professional working for companies that took care of investments for their customers could practice day trading. But now that the internet has allowed people to trade online from their homes, a lot of casual traders have also started day trading.

Day trading can be risky

Traders have now found that day trading is one of the best ways of making money. Whether you are into day trading as a professional or are just trying to increase the sources for your income, day trading has proved its potential for making money if due care is taken and proper norms are followed. Day trading can be risky but unless you take risks and make the correct decisions, there is no way you can maximize the profits from day trading.

Tips for a day trader

To make money on the stock market you have to buy when the prices of stocks are low and sell them when the prices go up. This is a very simple rule, but deciding when the price is low enough for you to buy stocks, and whether the price has appreciated enough for you to make a profit can be quite tricky and could decide whether your venture into day trading is successful or not.

Knowledge is the key to stock market trading in general and day trading as well. Newspapers generally have separate sections devoted to the stock market and you would do well to peruse these. The internet is another source of information, as well as many TV channels that are devoted exclusively to following the stock market. Make sure that you are not snowed under by the plethora of information that is available and limit your sources to only those that make you feel comfortable.

Restrict your day trading to shares that you are fully conversant with and see that the list is not too extensive. Your information on the stock market should keep track of its general behavior and you should pay attention to what is happening to the shares of reputed companies even though you are not trading in them. Your list of stocks should be of those companies that are constantly showing some movement as only then can you indulge in day trading and hope to make profit. If a stock stops moving, whatever the reason, take it off your list and look to replace it with a more volatile stock.

Learn how to analyze a stock’s movements quickly so that you can decide instantly whether to buy or sell. Do your calculations well and judge whether the small percentage movements are to your benefit or not. As you are trading from day to day, movements may not be large, though over the long run these can accumulate to quite large sums. Keep your feelings under control, and do not go overboard with a large gain or depressed by a big loss. Just see that your overall portfolio worth is always increasing even if it is witnessing some daily fluctuations.

So what have you learnt?

Sudden fortune may not come your way the day you start day trading! However, a steady accretion of cash can definitely take you to the goal of becoming the wealthy person you desire to be. The key is to be well informed, maintain a SMALL list of stocks that you KNOW as well as you know your own relatives, keep on top of what the markets are doing, analyze them continually, and make the right decisions at the correct time without getting too psychologically bogged down in the consequences of your action - either on the profit or the loss side.

Definition Of Options Trading

You want to enter the stock market but would like to limit the investment that you would have to make. Then you need to try option trading. It could give you a much bigger bang for your buck. Option trading commits you to paying a premium in return for a right to buy or sell a specified amount of shares within a specified time period.

Generally these option periods last a month and a specific day of the month is decided for termination of the contract. This is the third Saturday of the month or any other day specified by the exchanges who monitor such trades. The expiry of the period expunges all the rights of the option trader and he cannot make the trade after the date is over.

Basics

Stock trading and option trading are quite dissimilar. Understand the ideas and the terms behind option trading if you choose that as the way to trade in the stock market. The words used are quite specific and may sound like Greek and Latin to the newcomer. As on option trader, you would have the right to buy or sell a particular stock in the volume agreed on at a fixed price, as long as you execute the trade within the time that has been specified.

You do not have to exercise your rights during the specified period, but your failure to do so will cause the premium you have paid for such future rights to be forfeited. The premium is charged to you so that you can lock in the agreed price for the time period that you have contracted to honor. So during these period, if you find that the price of the stock has appreciated, you are free at any time to make the balance payment and acquire the shares at the price agreed. On the other hand if the price has gone down and you do not feel that it is worthwhile honoring the option, you can take no action and allow your contract to lapse. You would however forfeit the premium you have paid. This may look like a loss, but would be much smaller than if you had bought the shares at the prevailing price before the start of the options contract.

The stock price may drop or just remain lower the exercise price, the buyer of call option cannot use at all, but can also sell the option and in that way exit the position at a loss or breakeven. Instead, he can hold onto it with the hope that there will be rise in the option of the market value, by depending upon factors such as volatility, expiry time and much more.

Usually, the options of leverage can control a bulk amount of the original stock for relatively small capital expenditure compared with buying or selling the underlying tool. This makes options more attractive because there exists higher profits on investment than just trading the original instrument. There are also far more trading opportunities with lower risks that can be known only when you know what you are doing?

Terminology

When you opt for option trading you trade in blocks of 100 shares.

The option giving the right to buy the underlying instrument at the strike price is called the “call” option.

The option giving the right to sell the underlying instrument at the strike price is called the “put” option.

The price set in the option trading contract at which the underlying may be bought or sold is called the “strike price”.

In option trading, for call options you are “in the money” if your strike price is below the market price of the stock. For put options, if the strike price is higher than the current market price, you are again said to be “in the money”.

Similarly, if while option trading, you own calls and the strike price is higher than the current market price, your call options are said to be “out of the money”. With put options, you are “out of the money” if your strike price is lower than the current price.

The ease of online trading

You can use the internet for online stock trading. You need not call up your broker for giving instructions on stock trading, and do all this while being at home or in the office. You would of course need a computer, an efficient service provider for your internet connection and a good online broker through whom you route your trades. This will allow you to make the trades through your online stock trading account as per your own judgment and with paying just a little commission.

Take care while choosing an online broker

Look for the most reputed online brokers, and get in touch with them so that you can rout your online stock trading through them. Most of them would only be happy to provide you with any information that you require as they see you as a potential customer.

You need to know the minimum investment necessary to make for starting in online trading. Make sure that there are no fees if there is no activity on their site for whatever reasons. Get their full list of commissions/fees which you would need to factor in every time you make a trade. Some online brokers also help you out with your online stock trading by offering you tips and suggestions, and their own outlook on the market and its prospects.

Open an account

Opening an account with an online broker is generally a simple affair and can even be done online. You would however have to provide all the necessary paperwork and open an account with the stock exchanges, which will allow you to get all your stock price quotes electronically. The online broker may even have his own enrollment or other fees, for you to gain access to his online network so that you can trade in shares. You would also have to provide a wire transfer link to your bank account so that funds can be transferred both in and out of your account, in order to allow you to carry on the activity of online stock trading.

Some of them may require that you deposit funds with them before you start the online stock trading. Initially you may be allowed to conduct online stock trading only in stocks, and would be unable to indulge in trading in futures and options, foreign exchange or commodities, as these may require you to register separately. Margin trading may require additional funds depending on the limits you are looking for.

Be cautious while trading

Online trading can be as risky as any other and you would have to approach it with care and caution. Now that you are on your own and the actions are instantaneous you would require to tread carefully. See that you constantly monitor your portfolio through the tools that most online stock trading brokers provide. Your portfolio will be updated constantly and this will allow you to take decisions on a real time basis. Take advantage also of their services to make in depth analysis of the stocks you are planning to buy or sell, so that you make your trades with the right information available.

Forex trading is an altogether a totally different beast as compared to stock trading. One of the major differences between the forex and stock markets is that forex markets are open 24 hour, 5 days a week while stock markets have fixed timings. For example New York Stock Exchange (NYSE) is open from 9:00 AM to 4:00 Pm. You can only trade stocks at NYSE during this time.

Continuous 24 hour action at the forex markets baffles many new traders. Forex markets have no central exchange. It is an Over the Counter (OTC) market that is spread over various locations in the world.

Now, how to provide a open and close session for each day so that you dont have to sit in front of your computer all day getting yourself exhausted. An ingenious way is to divide the day into three eight hour session.

Further divide each 8 hour session into two 4 hour sessions using a 4 hour chart. This division of 24 hours is logical as there are only three major money centers in the world that have the capacity to move the forex markets.

These three money center that are central to the forex markets are: Asia, London and New York. So by dividing the 24 hours into three sessions we will call each session as the Asian, the London and the New York Session.

Asian Market Session: Sydney, Tokyo, Hong Kong and Singapore are the main cities that participate in this session. Major players are the export corporations and the central banks. Sydney opens and with that the forex markets become alive each day. Most of the price action that takes place in this session is unsustainable and jumpy.

London Session: London is still the forex capital of the world with deep and highly liquid forex market. Paris, Geneva and Frankfurt also are players in this session. The moves that originate in this session are very important keeping in view the amount of money needed to move a market this deep. These moves give you a lot of information about the market sentiments and positions.

New York FX Market Session: New York is second biggest FX market after London. Both of these markets overlap in the morning when New York is opening and London is closing. This is the time for major action.

The following table gives important times of the day that any forex trader needs to know: 00:00 GMT-Sydney Opens. 11:00 GMT-London opens. 15:00 GMT- London becomes very active. 17:00 GMT- London is active and New York opens. 18:00 GMT- London and Europe closes. 19:00 GMT- New York and Chicago getting ready for a close!

This overlapping between London and New York is when major price action takes place and new trends are formed or old trends are reversed. London is the market trend setter in fashion as well as forex.