A beginning trader is faced with having to make many choices as they get started. They must decide which stocks to focus on first and how to increase their online trading education. Most importantly, they should be concerned about managing their risk so they don't end up losing a lot of money fast and ending their trading career early.
One reason the beginner should focus on cheap online trading is that you will likely be making small trades at first. Instead of making a stock trade of $20,000 or even $2,000 early on, the beginner will make many trades closer to $200. Beginning traders don't have the confidence, knowledge or experience to make a $10,000 trade right off the bat. Doing that without more experience is way too risky.
Beginners should start with small trades to see how they do. They need to get some experience in picking a type of stock and then reading the buy and sell indicators. Once they prove they can generate consistent profits, they can move on to larger trades.
The amount you pay in commissions is very important in these cases. If you trade in small amounts, your commission on the buy and sell is much greater on a percentage basis than with larger trades. For example, if you make a $200 trade with a $10 commission, then your cost to buy and then sell will be $20 per stock.
In this example, right away you are starting with a 10% loss. That means the stock you pick has to make a 10% gain just for you to break even. And since you want to make a profit, your stock picks must consistently gain more than 10% ON AVERAGE - including your winners and losers. So doing cheap trading by keeping your commissions low is very important.
By selecting from the big name discount brokers, traders can feel pretty safe that they are getting a quality service from each of them. With this confidence, they should then look for the broker that allows them to do cheap online trading with the lowest commissions. There are many types of fees that can drive your trading costs up, so choose your online broker after viewing a side-by-side comparison of all these charges.
