The Indian markets are transitioning from being dominated by conservative investors to welcoming active traders. The new generation of investors, or as they prefer calling themselves, “wealth creators,” believes in using your money to create the life you desire (#YMYL). As a result, the BSE report for June 2022 showed that the number of registered users reached 7 crores, rising by 1 crore in just 139 days. Additionally, the number of active traders hit 1.2 crores in FY2022. Don’t yet assume that you’re late to the party. Follow these 7 steps to learn how to start trading online.

1. Learn about the Different Trading Instruments

Did you know the NSE boasts the highest number of contracts traded on any exchange worldwide? Yet, many Indian investors don’t know about derivatives trading. Equities are the most widely traded asset class in our country, but you don’t need to simply buy and sell shares directly on exchanges. You can trade them via multiple instruments, such as CFDs, options and futures, to make the most of more opportunities. Such contracts allow you to speculate on both rising and falling markets. Also, they can be traded with borrowed money (leverage), which multiplies potential gains. But remember that leverage also magnifies potential losses. So, first gain an understanding of the various instruments and markets such as equities, commodities and forex.

2. Learn about Trading Strategies

Start by learning about various trading strategies, including short-, long- and medium-term ones, to gain an understanding of what aligns with your financial goals and timeframe. It is critical to understand the techniques involved in scalping, day trading, arbitrage trading, news trading, sentiment trading, noise trading and more to gauge your trading persona.

3. Invest Time in Technical Analysis

Technical analysis is the key to effective trading. Develop an understanding of the various trading indicators that help traders determine entry and exit points to take advantage of price fluctuations in the market. Learn about volume, momentum, liquidity and volatility indicators. Every market has its specific movers and indicators to identify trading opportunities. Also, invest time in understanding how they can be used together to confirm signals. When you develop expertise, you can start using custom indicators and get them designed by coders to automate and speed up the process of decision-making.

4. Learn Risk Analysis

Risk analysis is a crucial step in learning how to start trading online. Learn to calculate fundamental risk figures, such as risk-to-reward ratio, alpha, beta, etc. In addition, calculate your risk limit. This helps make an informed trading decision for each position you take in the financial markets. In online trading, taking calculated risks is the key to a satisfying trading experience, in the spirit of #YMYL.

5. Look For a Broker

You need to open a trading account with a brokerage that offers the most suitable pricing and instruments you are interested in. Here’s a checklist to help you pick the right broker:

  • Check the credibility and customer reviews.
  • Learn about money transfer options and withdrawal delays.
  • Check if they provide trader education.
  • Learn about the ease of using the trading interface and facilities, such as one-click order placement and cancellation.
  • Verify that the trading platform offers the necessary trading tools, such as analysis reports, price charts, portfolio analysis, etc.
  • Check whether there is a demo account facility to practise what you have learned.
  • Do the brokerage costs fall within your investment limits.
  • Check if it supports a trinity Demat, Savings and Trading Account to ease fund transfers.

6. Open a Demo Account

Once you have picked a brokerage, open a demo account. On this account, you can put into use all the trading knowledge you have gained till now. It has two benefits. First, it helps you get accustomed to the trading interface and prepares you to act fast in the live markets. Second, since there is no money involved, you can practise and test different analytic tools and trading strategies.

7. Build a Trading Strategy

Experiment with the different instruments, strategies and indicators to develop a trading plan that works for you. Having a trading plan is critical before entering live markets. Incorporate risk management within the trading plan. Practise popular techniques, such as stop loss and take profit, to perfect risk management.

A good way to build a helpful strategy is to have a trading journal to track your wins and losses. Lessons from your losses can help you build a robust trading plan, complete with effective risk management, to make better trading decisions in the live markets.

A Final Word

Once you have finalised an online trading strategy, you are ready to dive into the financial markets and take advantage of the numerous opportunities it presents. Continue to fine-tune your strategy with changing market conditions and your financial goals.

Trading is risky by nature. Therefore, it is essential to prepare yourself with adequate knowledge. It is even better if you practise on a demo account before you invest your hard-earned money. Reiterating the mantra of current generation of traders – #YMYL, invest smart!