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Retail Trading and Trading 212: Part 2

So, you want to become the next Warren Buffett? Well, you came to the right place. In this article, I’m going to dive into the ins and outs of my favourite trading platform Trading 212, providing everything you need to know to get started and make your first trade. Even if you don’t plan on using Trading 212, everything can be applied to other online trading platforms.


If you want to know how online Trading actually works then be sure to take a look at my previous article here.


How to actually place a trade

Before you place a trade, you’ll need to decide what type of trading account you want. The three options are CFD’s (Contract for Difference), Invest and ISA. I’ll focus on the Invest and ISA accounts in this article. Trading 212 makes it very easy to place trades. After all, they make money on each trade so it's in their interest to make the process as easy as possible!


Placing trades on an ISA/Invest account:

To make it as clear as possible, I’ll use pictures throughout from the Trading 212 iPhone app that I took on 04/01/2021. There will be some small discrepancies in prices since they fluctuate throughout the day.



Here we have Walt Disney. The current market price is $180.47. This means one share of Disney costs $180.47. Now, that doesn’t mean you have to have $180.47 to invest in Disney since Fractional Shares exist! Fractional shares do what they say on the tin. They let you have a fraction of a share. This means you can decide exactly how much money you want to invest.


You may be wondering what all the other options are: Limit, Stop and Stop Limit. So let me explain.



What is a Limit Order?

Very simply, a Limit Order is the maximum price you are willing to pay per share. This is a price below the current market price.



Carrying on with the Disney example, let’s say you want to buy the stock for $175 per share. However, as you can see, the current market price is $180.40. You could set a limit order to buy the shares when the price drops to $175. However, there is no guarantee that the stock will drop to your set price, but if it does your limit order would be triggered. As you can see in the picture above, there is an expiration box, asking you how long you’d like to keep this limit order open for. The other option for that box is GTC which means Good ‘til Cancelled. That means it’ll be valid until the limit order is triggered or you cancel it.


If you already own shares, you will have the option to use a Limit ‘Sell’ Order which will be the minimum price per share you will sell.



What is a Stop Order?

A Stop Order is an order to buy or sell a stock once it meets the stop price. The stop price is above the current market price. In this example, a stop order would be used to buy a certain amount of Disney shares for the best available price when it hits the stop order. You can think of this as the opposite of a limit order.



If you already own shares, you will have the option to use a Stop ‘Sell’ Order. This is a very powerful tool that will allow you to cut losses when the share unexpectedly drops suddenly. A Stop Sell Order for Disney could be set at $150.39 which means the maximum you could lose per share is $30.



What is a Stop Limit Order?

A Stop Limit Order combines the features of a Stop and a Limit Order. You’d want to use this feature in the case where a stock could be showing a downwards trend and you think it will change to an uptrend. However, you are cautious so will only start buying the share when it has definitely passed a point where it will hopefully, not fall again.


The stop price will be higher than the current market price and the limit price will be even higher than the stop price.


In this example, you could set a Stop Price at $185 and a Limit Price at $187. This means that once the price reaches the Stop Price, a limit order will execute. The limit order is the price you are willing to pay per share. When the market reaches the stop price, it will try and execute at the limit price.





Dividends

Lastly, I’d like to talk about Dividends.


One of the most attractive features of owning shares are dividends. Dividends are regular payments ranging from around 0.1% to 10%. As long as you invest and execute a trade before the ex-dividend date, you will be entitled to the dividends. The ex-dividend date of a stock is the day that the stock begins trading without the subsequent dividend value. You can find out ex-dividend dates easily from most investing websites such as Yahoo! Finance, Bloomberg etc.


So, the way to get a dividend is to buy and hold a share. However, as previously discussed, Trading 212 only makes money when their customers place trades. This means Trading 212’s least favourite type of customers are the ones that buy and hold shares making a passive income through dividends.


Sounds easy? Well, when you start seeing losses, albeit they may be short term fluctuations, most people will not have the nerve just to stick around. You’d want to jump ship from a seemingly losing position to one in a different company whose share price is doing better. However, as long as you follow a strict trading plan and avoid making decisions based on emotion, you’re on the right track to becoming a successful investor!