Tips for Trading the Stock Markets

Many traders and investors have trading rules and tips to help guide their investments. To me too many tips are on a particular trade and do not focus on strategies. At the same time too few tips are based on how to reduce your risks.

If you are a short term investor and trading the markets between anything from 1 minute to 3 months then you have probably come across financial spread trading. Of course, as with all investments such as trading shares, funds, pensions, housing etc, you can lose money. With financial spread trading you can lose more than your initial investment.

Having said that, with spread trading, just like trading CFDs, your risks can be reduced by using a Stop Loss. A Stop Loss works as an automatic request to close your trade if your position moves against you by a preset amount. Note that some stop losses are not guaranteed.

Also there is a wide variety of markets available through spread trading and investors are not limited to stocks and shares. You can trade stock market index values, foreign currency pairs and commodity prices. This brings me nicely on to my next point, try to trade the markets you know. If you have little experience of the US stock market but have a good appreciation for the Crude Oil markets then you are probably better off trading the Oil markets.

Also, keep your direct trading costs as low as possible and enjoy the fact that broker’s fees and commissions are generally not charged with spread trading. If you are day trading and constantly trading in-and-out of positions this is a particularly important point.

Furthermore, be tax efficient when you trade and take that there is no income tax, capital gains tax or stamp duty to pay on spread trading*.

Don’t restrict yourself to normal market hours. Naturally the news that affects the markets comes out 24 hours a day. The 24 hour trading that some companies now offer provides a host of interesting opportunities. The underlying markets will still close but you can carry on trading markets like the German DAX, Japanese Nikkei, UK FTSE, Gold and major Currencies from Sunday night all the way through to Friday.

And when the news does come out make sure you can trade. When you are financial spread trading you do not take possession of any stocks, assets or resources. You are just speculating on the future price of a market. This allows you to place trades quickly and with little fuss; a very useful feature in fast moving markets.

So whilst there are many plus points, you still need to remember the potential downside. Ensure that spread trading matches your investment objectives. Familiarise yourself with the risks involved. Spread trading does carry a high level of risk to your capital. Seek independent advice where necessary.

* Tax law can be changed or may differ depending on your personal circumstances.

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