With online share trading (OST) growing in popularity, you might assume that all the new traders are stock market experts who get it right all the time. The reality is that share trading has certain risks. While there are opportunities for making money, there’s also the possibility of heavy losses if you’re careless or follow poor advice.

OST is a solitary activity, so you are truly on your own – you must look before you leap. No one can predict the performance of a share with perfect accuracy, so you should trade cautiously as part of a larger investment strategy. Here are 5 tips that can make OST more rewarding.

Create a dummy profile to practise

Before getting involved in OST, you can create a dummy profile to teach yourself how trading and the markets work. The Nedbank OST trial account is valid for 30 days and although you can’t use this account to make actual trades, you can access market data and watchlists.

The best way to learn is through being involved, which is why we offer the trial account. If you learn how to read the market and interpret market data before you start trading, you will be confident in your own judgment and less likely to make trades based on supposed ‘hot tips’ from friends or your social group.

Knowledge is power

It’s important to keep up with the latest stock market trends and the economic, business and financial news that affects shares, including the South African Reserve Bank’s interest rate plans. Do your homework.

Keep yourself informed about companies you are keen on, learn about their shares and general markets. Scan business news and bookmark reliable online news outlets. Use all this information to make a wish list of stocks you’d like to trade.

Know your risk appetite

Share trading is high-risk. It’s important to understand your attitude towards risk. How much would you be prepared to lose in a trade? If you take on too much risk, you might panic and sell at a bad time. But if you don’t expose yourself to enough risk, you may be disappointed with your returns and potentially be unable achieve your objectives.

The best way to spread risk is to invest in a variety of companies rather than in a single stock. Investing in shares should be part of a long-term strategy, with an investment horizon of at least 5 years to help offset any market fluctuations during that period.

Set aside trading funds

Assess and commit to the amount of capital you’re willing to risk on each trade. In other words, set aside a budget that you’re willing to ‘play’ with. No matter how your trading turns out, whether you lose or make money, always limit yourself to the money you’ve set aside for OST. In this way, your other savings or investments will always be safe from any reckless impulses.

Familiarise yourself with the platform’s financial instruments

In addition to shares, Nedbank OST allows you to buy a warrant – a derivative that gives you the right (but not the obligation) to buy or sell a security, most commonly an equity, before expiration. Then there are contracts for difference (CFDs). A CFD is an arrangement made in financial derivatives trading where the differences between the open and closing trade prices are settled in cash. There is no delivery of physical goods or securities with CFDs.

The platform also allows you to trade in Exchange Traded Funds (ETFs), a pooled investment that can be bought or sold on the markets like regular shares. ETFs track an index, sector or commodity or another asset. Lastly, there are future contracts, which are legal agreements to buy or sell a particular commodity. Know and understand which of these instruments is ideal for your investment strategy.