Online Stock Trading – Small Time Traders Versus Institutional Traders

Online stock trading has taken a life of its own today. The local bourses worldwide are now booming with large amounts of trades being placed in markets like Shanghai and Shenzhen with local officials noting a large rise in the number of share trading accounts being opened.

This article will list three strategies that large trading desks use and explain how the small investor can benefit from these same strategies.

Trading Strategy

Small time investors tend to rack up large losses in the stock market mostly due to a lack of a good online stock trading strategy. The essence of a good trading strategy is two fold. Firstly, always acquire a stock when it is undervalued so that your downside is protected. Secondly, fix an upper and lower selling limit mentally when you acquire the stock so that you sell on reflex and take your emotion out of the trading equation. But always ensure that the instrument or stock that you are trading enjoys good trading liquidity or such trading strategy would not work.

Large capital reserves and margin

Large banks have trading desks that have large capital pools to trade with and one winning trade could potentially bring in large profits to the bank but the converse is also true as Nick Leeson of Barrings Bank in Singapore has shown us. For the small time investor, leveraged instruments if managed well can help solve this issue of small capital. However with large leverage, you can lose big as well. Spend time tracking your trading successes and failures in a trading journal and once you start stacking multiple gains, you can then progress to making more money using these leveraged instruments.

Money Management

Finally, no trade no matter how good is 100% successful all the time. Thus most online traders risk 1% of their capital on any trade that they undertake. This online stock trading strategy is a good one as it limits your potential loss and reduces your risk exposure to the market. Some when people state that they are always in the market, this only holds true in a rising market. Remember that sometimes the best policy is to keep your holdings in cash in a downward market.

In conclusion, of all three online stock trading strategies highlighted above, money management is a very important if not the most important strategy that any stock trader should develop so as to retain your profits and to reduce your exposure to bad trading. Effective stock trading therefore also means keeping your profits that you earn from trading. Take some action today to plan your trading strategy and start acquiring greater profits in your trading activities.

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