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Prior to placing capital at risk in markets there is a set of criteria one must take into account and pursue.
One of the first decisions to be made is what type of financial instrument one desires to trade.
The primary asset classes worth consideration for the individual are Equities (stocks), Options, Futures (the primary method of trading commodities), and Currencies (Forex).
There are different advantages and risk considerations for each of these markets, and they must be evaluated when selecting a market to trade. There are also different initial account equity requirements for each asset class and different amounts of leverage for each instrument.
Asset class and market selection
While there is much overlap, there are also different styles and skills of trading that are unique for each specific market.
Another decision to be made is that of 'where' to trade. Ultimately the choice comes down to domestic markets or international markets. The growth of e-trading over the past 15 years offers unparalleled access to international markets across the globe and represents tremendous opportunity for anyone currently deciding to get involved in trading.
Considerations for market location should include liquidity, transparency, and regulatory oversight. In general, the best place for trading occurs where markets have high volume of activity, a large number of participants, efficient systems, and where markets operate freely within a strict regulatory framework. This all helps to ensure the best possible order handling at the lowest cost for the participant and the safety of capital deployed in the marketplace.
Brokerage account and market access
In order to pursue trading, a brokerage account must first be opened.
There are more choices than ever with regards to brokerages. This is of great benefit to those currently entering markets because industry competition has resulted in commissions (the fee charged for order execution) being lower than ever before and continual improvement to services and functionality.
The best choice for an active trader is a 'Direct Access' brokerage. Direct access essentially means that the brokerage is acting merely as a pass-through entity, charging a small fee for allowing customer orders to pass directly in to the market and receive the most instantaneous execution possible.
Real-time price quotes and data feeds are generally associated with direct access brokerages as well. It is imperative for a trader to have real-time quotes and feeds in order to make timely trading decisions and be able to respond quickly to movements in price.
Education, training and mentoring
No matter what one endeavors to pursue, education is always of paramount importance. There is a tremendous amount of market related education currently available through books, websites and seminars.
The more well rounded one's market knowledge, the higher the probability for success in market interaction. In general though, it would be best to try to focus on receiving more qualitative education as opposed to sheer quantity.
It is of significant advantage to new market participants if they can acquire training or mentoring from someone who has significant trading experience. Experience is unquestionably the best teacher, and having someone who can share the benefits of their market experiences and acumen can save a new market participant immense amounts of time and account equity.
A commitment to ongoing education is a natural part of the process when one is engaged in the business of market participation.
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