Online trading is the practice where traders buy and sell assets online through a broker’s trading platform. The practice is also known as self-directed investing or e-trading. Individuals can trade stocks, mutual funds, ETFs, bonds, currencies, etc. through this trading platform with greater convenience.
Though several benefits accompany online trading, both new and seasoned traders often hesitate to trade through an online platform. The reason for the same can be ascribed to a lack of knowledge pertaining to the platform and the various myths that remain afloat in the investing market. Such myths not only jettison traders’ confidence in the process but also cloud their judgements regarding the platform in general.
Thus, to make the most of online trading, individuals should gain access to adequate details about the functioning of the same. Doing so, they will not only be able to strategise their investments better but will also be able to identify surrounding myths more easily.
Read on to find some of the most common myths about e-trading!
Top 7 Online Trading Myths to Avoid
Here are some commonly heard myths that waver traders’ perception of e-trading –
Myth 1: Individuals cannot trade with small accounts
Fact: Contrary to popular belief, individuals can start their trading career with a small account as well. Though initially, they may find it difficult to generate earnings, over time, they will be able to generate substantial income. One can say that succeeding at trading through a small account depends mostly on users’ patience and discipline.
Myth 2: A standard time frame can fit all
Fact: It must be noted that trading at a higher time frame is not always the easiest, just like trading at a lower time frame is not the hardest. However, the recommendation – ‘one time frame fits all’ does not bode well with online trading.
To make the most of their trading endeavours, individuals need to find what works best for them and identify their weakness to coordinate their strategies accordingly. For instance, trading higher frames often prove to be the most challenging for those who do not possess expertise for the same.
Myth 3: The higher the leverage, the more is the profit
Fact: Essentially, leverage is a mechanism, and so it is neither advantageous nor damaging and can be used to suit custom trader requirements. However, traders who lack knowledge about trading with leverage should try to avoid it as it can prove risky. Similarly, trading with a high amount of leverage and size often goes against traders, especially when the prices are against them. In that case, even a small loss can turn out to be a considerable loss and wipe out traders’ accounts faster.
Myth 4: A demo account is unessential
Fact: Conventional wisdom suggests – A demo account is unessential. However, in practice, spending some time on a demo account always works in favour of traders. Starting the trading endeavour with virtual money protects traders against unwarranted losses. In fact, it offers them a fair idea about the skills they would require for successful e-trading, and further helps them to become more patient and responsible as a trader.
Myth 5: Volatility always harms stocks
Fact: Generally, traders hesitate to invest in stocks when the market is volatile as they assume it will turn out to be bad for them. However, one must understand that volatility works both ways. For instance, a stock that moves 20% up is as much volatile as the stock that moves 20% down. It must also be noted that the market may stay volatile for a much longer time and may recover at a slower pace than anticipated. Consequently, financial experts recommend traders to invest in long-term investments.
Myth 6: E-trading helps to generate instant wealth/ It takes years to generate wealth through e-trading
Fact: These are probably among the most common myths about online trading that cancel out the impact of each other and baffle traders more than usual. However, the truth is that traders can generate substantial earning through e-trading. But, it often takes at least 6 months to generate promising returns.
Furthermore, traders who are adept at research can devise a sound trading strategy and park their money in profitable companies to generate multiplied earnings. So, the bottom line is, you can anticipate good returns through trading but should not expect to turn rich because of it overnight.
Myth 7: Training is unessential for day trade
Fact: It is probably among the typical day trading myths that put traders at significant risk. Though traders do not necessarily require a certificate to practice day trading, they must educate themselves about the fundamentals of self-directed investing.
With a proper understanding of the fundamentals, individuals will be better positioned to identify patterns, develop a suitable system and formulate effective trading plans. In turn, it will help them emerge as a confident and well-informed trader and will enable them to make profitable investments.
Trading Myths – In a Nutshell
With that being said, let’s take a quick look at the e-trading myths in this table below –
|S.N.||Online Trading Myths||Online Trading Facts|
|1.||Traders cannot trade with small accounts||Patient and disciplined traders can trade with small accounts successfully.|
|2.||One time frame fits everyone||Traders must identify their strengths and weaknesses and pick a trading time frame that works for them.|
|3.||Higher leverage attracts more profit||Leverage is a mechanism. Individuals with limited knowledge should avoid leveraging.|
|4.||A demo account is unessential||Such an account helps to become familiar with the fundamentals of trading.|
|5.||Volatility always harms stocks||Volatility is a two-lane highway with equal opportunities for appraisals or losses.|
|6.||E-trading helps to generate instant wealth / It takes years to generate wealth through e-trading||E-trading helps generate substantial income, but one should not expect to make money overnight.|
|7.||Training is unessential for day trade||Training is essential for better planning and streamlining any type of trading.|
Notably, individuals must factor in their capability as a trader and their knowledge in a particular field before venturing into the investment platform. Furthermore, if required, they should seek professional advice to make the most of their online trading endeavour.
You can also browse through the likes of Groww stocks platform to learn about the fundamentals of the investment practice and its dos and don’ts!