How to Make Money Trading Online

If there is one thing that most web surfers want to know, it’s how to make money trading online. While making money trading online isn’t exactly an artistic endeavor, there is an art as well as a skill to it that can make or break your success level.

Buy Low
The first rule to making money trading, whether online or off, is to buy stocks and other investments at a low price. But what does that actually mean? Does it mean that if you buy any stock, bond or mutual fund that looks cheap, you will make money? No.

You must research each position you think about buying in order to determine whether or not you think its current price is low compared to its relative potential and possible future value. Because only stocks and other investments that will eventually increase in price are worth buying low.

Sell High
The next tried and true rule to help you make money trading online is to sell a stock when it has reached a higher price than it had when you bought it. There are a few things that you must consider before you do this though:

1. Is the stock priced high enough to help you profit even after commissions? Your cost basis for each position is the amount of money you spend buying the positions—and that includes the amount you spent on commissions. Chances are good that you will also need to pay commissions when you sell. If you multiply those commission charges over the number of shares you own, will the higher price still net you a profit?

2. Will you lose dividends? Many investors forget to include dividend payments as part of the profit they make on a position. When you sell something because it goes up in price, remember that this means you will lose out on all future dividends. For some stocks, this might be a bad idea.

3. Are you ready to pay taxes? When you sell your stocks for a profit, you will need to pay taxes on the gains. If you have held the stock for over a year, then you may be able to pay long-term capital gains which is generally less expensive than long-term gains, but may still be something you don’t want to deal with right now.

4. Will the stock go up even more? It is impossible to determine the absolute best time to sell your stocks. You pretty much have to decide what time gives you a profit that you will be happy with and then let it go. But before you do, look at trends in the industry, sector and even the overall market and economy and determine whether or not you think the stock has a good chance of continuing to grow.

Strategies to Consider
Many people believe that the best way to make money trading online is by day trading. Day trading is a process that involves watching your stocks momentum every day and making buy and sell decisions hourly as the market fluctuates. Day trading is a risky, time consuming strategy that involves a high level of attention in order to exploit short-term movement in the market.

Other investors favor a buy-and-hold strategy that basically believes that over time most positions will rise in pace with the overall market, so by buying and holding your positions for decades, you have a better chance at making a profit.

Finally, dollar cost averaging is another method of making money over a long period of time. In dollar cost averaging, you make regular buys into the stocks you already own, constantly building up your ownership interest in them. Because stock prices go up and down all the time, the consistent purchasing method of dollar cost averaging allows the buyer to average out his or her high-dollar purchases of one stock with other, lower-cost purchases when it is down. Sometimes, this method can even lower the overall cost basis of your position.

There are always individuals ready to answer your how to make money trading online questions with oversimplified answers, making it look impossible to lose money. The unfortunate truth is that it does take research, skill and the ability to make difficult decisions in order to make money while trading online. As long as you treat it like a serious endeavor rather than an unimportant hobby, you will increase your chances of success.

Comments are closed.