How to Earn More Money from Online Stock Trading

Investing in the stock market can be a great way to make money, especially in today's economic climate where savings accounts and long-term bank bonds don't provide significant returns. While stock trading does carry risks and losses are inevitable, with thorough research and careful investment in the right companies, you can potentially earn substantial profits.

Study the current market trends. There are many reliable sources reporting market trends. You can subscribe to stock trading magazines like Kiplinger, Investor's Business Daily, Traders World, The Economist, or Bloomberg BusinessWeek.

• You can also follow successful market analysts' blogs such as Abnormal Returns, Deal Book, Footnoted, Calculated Risk, or Zero Hedge.

Choose a Trading Platform. Some highly rated platforms include Scottrade, OptionsHouse, TD Ameritrade, Motif Investing, and TradeKing. Before committing to a platform, make sure you understand all transaction fees or any percentage deductions involved.

• Ensure the platform has a good reputation. You can find reviews about the service online.
• Choose one that offers a variety of features such as a mobile app, training tools, investment research, low transaction fees, readable data, and 24/7 customer service.

Set Up an Account on One or More Platforms. While you don't have to register on multiple platforms, it’s a good idea to create accounts on two or more platforms when you're starting out and later narrow down to the one that suits you best.

• Be sure to check the minimum balance requirements for each platform. You may only have enough budget for one or two accounts.
• Start with a small investment, like $1,000, though this might limit you to platforms with higher minimum balances.

Practice Before Trading with Real Money. Some platforms, such as ScottradeELITE, SureTrader, and OptionsHouse, offer virtual trading environments where you can practice for a while to assess your skills without risking real money. While you can't make money from virtual trading, you also won't lose anything!

• Practicing this way helps you get familiar with the methods and decisions you'll face when trading, but overall, virtual trading doesn’t fully reflect the reality of live trading. In actual trading, a delayed buy or sell might result in prices differing significantly from your initial expectations. Plus, virtual trading doesn’t come with the same stress that comes with trading real money.

Pick Reliable Stocks. There are many options available, but you’ll want to choose stocks from companies that are dominant in their industries, popular among investors, have a strong brand, and boast a solid business model and history of success.

• Check the company’s public financial reports to evaluate profitability. A profitable company typically means its stocks will provide higher returns. Visit the company's website to find complete financial information in their latest annual report. If you can’t find it online, contact the company for a physical copy.
• Examine the worst trading quarters and assess whether the potential returns justify the risk of repeating those results.
• Research the company’s leadership, operational costs, and debt. Analyzing balance sheets and income reports helps determine whether the company is likely to continue generating high profits.
• Compare the company’s stock history to competitors. If all tech stocks are dropping at once, instead of comparing to the market, assess the company against its competitors to identify which is stronger in the industry.
• Attend the company's earnings conference call, but first, review their quarterly earnings report, typically posted online an hour before the call.

Make Your First Stock Purchase. Once you're ready, you can start buying a few reliable stocks. Depending on your budget, you can buy more or less, but aim to buy at least two stocks. Well-known companies with a long trading history and a solid reputation tend to have the most stable stocks and are ideal places to begin. Start small and be prepared to lose this initial amount.

• $1,000 is a reasonable amount for a beginner. Just be cautious of platforms with high fees, as they can eat into your profits if your account balance is low.

Focus on investing in mid-cap and small-cap companies. A mid-cap company is one with a market capitalization between $2 billion and $10 billion. A large-cap company has a market capitalization greater than $10 billion, whereas a small-cap company has a market cap under $2 billion.

• The market capitalization is calculated by multiplying the company's share price by the number of shares outstanding.

Track the market daily. The golden rule in stock trading is to buy low and sell high. Therefore, if your stock's value rises significantly, you may consider selling and reinvesting the profits into a lower-priced stock.

Consider investing in mutual funds. Mutual funds are managed by professional managers and typically include a mix of different stocks. As such, investing in a mutual fund can help diversify your portfolio across sectors like technology, retail, finance, energy, or even international companies.

Buy low. This means purchasing stocks when their price is relatively low compared to their historical trading values. Of course, no one can predict with certainty when a stock will rise or fall—this is the challenge of stock investing.

• To determine if a stock is undervalued, examine the company's earnings per share and insider trading activities. Look for companies in volatile sectors and markets, as these areas offer the most potential for profits.

Sell high. This means selling your stock at its peak value in the history of its trading. You can profit when you sell your stock for a higher price than what you paid for it. The larger the difference between the selling and buying prices, the greater your profit.

Don't sell out of fear. When the stock price drops below your purchase price, your instinct may be to sell immediately. While there is a chance the stock could continue to decline and never recover, consider the possibility that it may rise again. Selling due to a loss is not always the best option, as doing so guarantees that you will lock in a loss.

Study both fundamental and technical analysis methods. These are two basic approaches to understanding the stock market and predicting price movements. The method you choose will determine how and when you buy and sell stocks.

• Fundamental analysis focuses on evaluating a company's performance, reputation, leadership, and overall health. This approach aims to assess the intrinsic value of a company and its stock.
• Technical analysis examines the entire market and the factors that influence investors' buying and selling decisions. It involves observing trends and analyzing investor reactions to market events.
• Many investors combine both methods to inform their investment decisions.

Consider investing in dividend-paying companies. Some investors, known as income investors, prefer to focus primarily on dividend stocks. With this strategy, the stocks you hold can still generate returns, even if their market value is not particularly high. Dividends are profits paid directly to shareholders on a quarterly basis. Whether or not to invest in these types of stocks depends entirely on your personal goals as an investor.

Diversify your portfolio. Once you've acquired stocks and understood the process of buying and selling, it's time to diversify your portfolio. This means investing in a variety of stocks across different companies.

• Startups can be a good choice after you've established a foundation in more established companies. If a major company acquires the startup, you may see a significant return. However, note that 90% of startups are less than five years old, making them a higher-risk investment.
• Consider investing in multiple sectors. If your initial holdings are mostly in the tech industry, you might want to explore the manufacturing or retail sectors. This can help balance your portfolio and protect against downturns in any one sector.

Reinvest your profits. After selling a stock (hopefully at a price higher than your purchase price), you should reinvest both your original capital and the profit into new stocks. If you can generate small profits regularly, you're on your way to success in the stock market.

• Consider placing a portion of your profits into a savings or retirement account.

Invest in IPOs (Initial Public Offerings). An IPO refers to a company's first offering of stock to the public. This can be a great opportunity to buy shares in a company you believe in, as the IPO price is typically (but not always) the lowest price per share you'll see.

Assess the risks when selecting stocks. The only way to make significant gains in the stock market is by accepting some level of risk and having a bit of luck on your side. However, this doesn't mean you should throw all your money into risky investments and hope for the best. Stock investing is not the same as gambling. You should thoroughly research each investment and ensure you can financially recover if things go south.

• On the other hand, playing it safe with stable stocks may not allow you to "beat the market" and earn high returns. But these stocks are typically less volatile, meaning the risk of loss is lower. With stable dividends and taking risk into account, such companies could be a much better investment than high-risk ones.
• You can also mitigate risks by using risk management strategies for your investments. You can read more about risk management strategies in investment.

Be aware of the downsides of day trading. Brokerage firms often charge fees for each transaction, which can add up over time. If you're based in the U.S. and you consistently make significant profits from day trading, the SEC (Securities and Exchange Commission) may require you to maintain a relatively high minimum balance in your account. Additionally, day trading carries significant risks of large losses and can be very stressful, so it's often better to invest for the long term.

Consult a licensed public accountant (CPA). When you start making significant money in the stock market, you may need to consult an accountant regarding the taxes on your profits. While it’s best to seek advice from a tax expert, you can still research this information on your own to avoid the cost of hiring a professional.

Know when to walk away. Trading in the stock market is similar to legalized gambling, and it's not a long-term investment strategy. This sets it apart from true investing, which is safer and intended for the long haul. Some individuals can become obsessed with trading, leading them to lose substantial amounts of money (even their entire investment). If you find yourself losing control over your investment choices, seek help before facing complete losses. If you know a wise, objective, and calm expert, you can ask them for assistance when you feel out of control.