There was time when stock trading took place over a phone call or even send a letter. You’d simply have to call or send a letter to a broker and ask him to buy shares or securities for you. You didn’t have the internet or any references to get enough information.

Your best information was through word of mouth or the local newspaper. For years these brokers dictated terms in the market before the internet came and took over.

As we evolve more and more into a digital world, countless opportunities open up every day for people around the world. Everything has been made available to us within the palm of our hands. But how we use the technology in our hands is going to determine how you are going to shape your future.

The prevalence of the internet has created a level playing field for traders across the globe. There is no disparity in terms of the information available to traders. Whether it’s a trader in Europe or whether it’s a trader in Africa, every information is the same and the market is going to affect everyone the same.

Online Trading and its impact

Financial markets has had an huge impact of technology with the advent of electronic trading in the 1960s.

In early 90s, the trading was introduced online with the advancement in world wide web & internet. Online trading has since picked up worldwide and in Africa due to the transparency and empowerment that it gives to investors.

In the last few years, online trading has emerged as the preferred means for retail investors to participate in financial markets. This has increased market participation and now it is being reported in 2020-21, retail/individual investors are contributing to 50% of investments in the global financial markets.

With Covid-19, retail trading has seen even more growth worldwide including in Africa. Markets are all time high and on bull run due to retail investments and speculation that online trading has enabled.

The young African population has turned to the internet and smartphones to take active participation in global financial markets. According to Trade Forex Nigeria, Youngsters are increasingly investing in financial instruments online like – tech stocks, forex, cryptocurrencies and commodities including gold, oil etc. There are now over 1.8 million retail traders in Africa and trading volumes are up by almost 80% from 2019 figures.

Though online trading has empowered investors with its speed of information & execution. But it has also brought risks & scams which most investors are unaware of.

The pandemic has fuelled the big digital shift and has shifted millions of businesses to online platforms. It has reached a point where people are seeking only work from home opportunities. This has caused many to seek money making opportunities in financial markets. Millions of people have become new investors in the financial markets due to this pandemic.

But the inexperience of the new traders is what many scammers are banking on.

While internet which has made it easy for investors to invest, but it has also made it easy for scammers to target victims. Reports suggest that as more people go online, they will be subjected to scams, false business opportunities, risks etc.

Though, governments exist to provide regulations but there exists a world beyond those regulations as millions are falling into the hands of dubious schemes.

Moreover, as online trading is on the internet at click of a button, it is so easy to invest that investors often forget the research aspect of investing and the risks involved.

If you are looking to trade online now, here are some basic do’s and don’ts to keep in mind when trading and to help you prepare for all the worst-case scenarios in the online trading world.

These points will help you prepare and educate yourself against all possible risks.

What to do and you must make sure when you are trading online?

  • Do Full Research & Educate yourself before start: This is the most important step before you decide to start investing. You need to understand what exactly you want to do and how you are going to do it. Talk to people to get more perspective. After you are comfortable with your decision then you can start trading online.

  • Do Know the Risks before trading: More than 60% of the people who invest online lose their money. So, you should know that there are more chances to lose your money than make money. Experienced traders say that you should get into online investing only if you have money to lose.

  • Do Check Trading Fees: The brokers are the real kings in trading, they stand to gain profit even if you lose all your money. Your profit or loss depends on commission and fees that is charged by the broker. So, you need to check what are the transaction fees and what are all the broker costs before registering and depositing with a broker. There will be a lot of hidden costs so you need to be aware of everything.

  • Do always Compare and Check your broker: Since the industry has witnessed massive growth there are far too many brokers to even choose from. Traders are spoilt for choice. But there are many unregulated brokers who are responsible for many scams done online. So, you need to find licensed brokers and then only start trading. Like for example, if you are looking to trade stocks in NSE, then you must look for brokers licensed by NSE, and if you are trading international stocks or forex or commodities CFDs, you must check and choose best forex brokers that are regulated with top tier regulators.

  • Do Keep your passwords safe and secure: Never share your passwords with anyone under any circumstance. Always have passwords that are case sensitive so you can reduce all chances of getting hacked. Do not have the same password for all your accounts.

  • Do complete your KYC: Every customer needs to do his/her before doing trading otherwise the broker will stop all your payments and you will not be able to withdraw your funds. Complete all the KYC registration so you don’t have any problems at withdrawal.

  • Ensure your trading account and bank account/withdrawal method are linked: Make sure the correct bank account along with all the correct details are attached with your trading account. Your bank account should be in your name and even the trading account should be in your name. Brokers will not allow you to withdraw funds if you give incorrect details. In case you are trading on NSE, also make sure your CSCS account is active and linked to your trading account.

  • Do Keep a Trading Journal: Always keep a small journal where you have listed down all your trades. It’s better to adopt this method since it will help you in the long run. It will help you understand and analyse your investments. This is a great way to learn from your past mistakes.

  • Do Set aside funds for emergency: There’s always huge risk when trading online because of market volatility, so its best if you have an emergency fund to take care of such situations if there comes a time in the future.

  • Do an audit: At the end of the day after you have completed trades, crosscheck all the transactions in your account and verify it with your statement to understand all the charges and to check any discrepancies. Often times there can be errors in computing transaction charges. Just to be on the safe side, cross-check.

  • Do use Demo Account to practice: Almost all online brokers offer demo trading accounts, its best if you learn to trade on a demo account so you can understand how the market fluctuates. You can also prepare your investment plans based in your performance with the demo account. Demo account is a good place to start since it allows you to trade in real time with no real money.

  • Do Learn and use safe trading practices: Don’t become over confident if you have huge success. Always follow the same procedure you adopted to ensure that you don’t get carried away. Don’t become too addicted. Just trade for a few hours and then close it for the day. Over trading leads to huge losses.

Don’t forget these points, never do this while trading online:

  • Don’t Forget to Set A Budget: Always have a budget to make sure that you know how much money you can spare for investments. This way you will have only a fixed amount so it will enable you to trade efficiently.

  • Don’t sway from your budget even as you start to make more money: Always try to have the same budget when you start off, there will be days you make money and there will be days where you will lose money. So, it’s best to follow similar patterns and always allocate funds according to what your budget allows.

  • Don’t share passwords with anyone or set weak passwords: No one should know your password. Make sure its personal to you and you set it with the most complex words and characters to ensure maximum safety.

  • Don’t follow advice of others: What works for others might not work for you, so always follow what you feel. You can take advice from others but it’s your decision to use the advice or not.

  • Don’t access your trading app or account from public places/public WIFI: It’s always a risk to trade on public network due to hackers. So, don’t ever trade on public networks. Hackers can get all your information and you can lose all your money. Use only private networks.

  • Don’t fall for scams: If an offer seems too good to be true then it’s definitely a scam. Avoid becoming a party to such fraud. Choose realistic investment plans which promise slow but consistent returns. Don’t try to make quick money and lose all your investments.

  • Don’t Forget to Diversify your portfolio: Don’t put all your eggs in one basket, try to invest in different things to ensure that there’s balance and safety of investments. In a long run it’s the best policy.

  • Don’t forget to use Risk Management: Always have a risk management plan as back up since online investing involves taking huge risks that can wreak havoc in your life.

  • Don’t use unsafe Leverage or don’t trade using margin/leverage at all: Leverage levels are where most traders lose their money. If you want to understand what leverages are then read about it, if you don’t know about it then don’t use leverages at all.

  • Don’t ever overtrade: One big problem with online trading is that it’s very addictive, it can lead to over trading. Keep fixed hours for trading and then shut down your account.

  • Don’t bring emotions into trading decisions: If you get carried away by your emotions then you stand the risk of losing everything you want as you deviate from your trading plan. Always try to keep a cool while handling online trading.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.