How to Leverage Global Stock Markets

Trading in foreign markets and between foreign markets, be it Chinese, Indian or European markets has become a reality for day traders across the globe and even on the African continent. Here is some advice to get you started in global trading, shared by one of the most successful stock brokers on the African continent.

Trading stock markets has radically changed with the birth of Internet. In 1995 still, the broking community was pretty much a closed structure, an old boy's club. You couldn't play yourself on the stock market, you needed to have a broker. By 2005, the market has moved towards online trading with the development of Internet after 1998. Now you can go online, open an international account with a bank and start trading international markets.

There are still some restriction though - the only restrictions for South Africans, for example, lie in the ability of opening up an account. For example, foreign traders cannot set up account in USA, however if you can open a UK account you can trade the American markets too from that account. You can trade anything from commodities to futures to foreign exchange. Technology has enabled the individual to become a day trader.

The long-term investor doesn't tend to want to invest in the foreign markets. A day trader opens an account in the morning and closes it down in the afternoon. The day trader is a highly skilled individual who is knowledgeable in the market. The global markets are for day traders - as a long-term investor you don't have the time to follow the strategies involved in day trading.

If you are going to become a global trader, you have to determine which is the best trading style for you. Your trading style depends on your personality, the time you have to trade and your knowledge on the market. Most traders will prefer an electronic trading, which is all anonymous. If you want to buy a share quicker than anyone else, you make a higher offer. The electronic environment is a queuing system. If you buy the share at the current market price, you simply go to the back of the line. All orders are filled from the front. If you want to sell now, sell at the lower price and jump the queue.

You have to understand the environment you're in before you trade. That is the most basic rule of investing. The second rule is to understand which is the leading indicator. The stock market is the leading indicator of the economy, not the other way around. If you get it wrong, every trading decision will be based on the wrong assumption. You really need to understand fundamentals before even looking at technical aspect. Stockbroking is a profession and you cannot move from one profession to another without studying the markets. There are no shortcuts.

If you really understand the markets and how the four environmental factors influence shares - economy, politics, business and technology - then your gut instinct starts to kick in. It only does the better your knowledge and skills. It's different than reacting on fear or greed. Gut instinct is not emotion. It comes with experience.

A good trader must have complete discipline, work ethic, commit to the trading strategy (not breaking its own rules) and the work schedule. A good trader needs to understand that if anything happens in the Asian markets, how would that ripple-effect South Africa, for example? We are heading towards a 24 hour market, where we can trade anytime. The Internet didn't give an advantage, it just made possible for trading hours to become more complex.

There are unrealistic expectation to trading. Most people want to trade global markets in a matter of weeks, whereas they took several years to be in their current profession. Unfortunately it's not like that and you need to understand the market, what the technical indicators do and what to do when something happens in the market.

Markets move in an irrational manner. It's not always buy when a share price goes up. Sometimes shares prices fall with good news and go up following bad news. If the market expected better news than the news that came out, the share price falls, if the market expected worse news than the news that came out, the share price rises.

As a trader, you must know what these things mean. You can learn to trade. The better your knowledge, the more you can trade. You must have full knowledge of the companies you're buying shares from. What do the companies do? How different are they from the competitors? How did the share prices performed in the last months?

Where do you start? First establish a long-term portfolio and only then move to the futures market. You must first succeed in these before being comfortable with short-term portfolios. You need knowledge and then to built up capital. You have both currency and country risks in global markets. Try and look at a virtual portfolio and understand it before trading with real money.

Will a mentor help? Certainly. Mentorship is individual assistance and helps you build knowledge. It's comforting to know you have someone to call and ask for advice. Traders, especially in the beginning, need someone experienced to be there for them. When they want to buy shares, they should look at random shares, think about them and analyse them before trading. When they do it, they know they are doing it with the knowledge behind it.

A trader must always have a stop-loss. If the share price falls below that, you move the share. If you have a stop-loss strategy, use it. In the market you can make money with share prices falling. The skilled, disciplined trader will say: There are no problems in the market, only opportunities. Magliolo claims that famine, floods and war are good and it shocks many people. If you don't agree, then you're not ready for day trading. Because day trading is exactly that. Disasters create demands for companies to supply - you get the big picture. It's not a nice thing to say, but a true trader will take advantage of the situation. You need to get to that mentality and accept it.

You would perhaps wonder how effective is trading in global markets as a wealth creation tool, as opposed to other means of investments like retirement funds or property investment. The question is: Why should anyone in the world be limited to invest only in their country? One should be able to move money anywhere in the world as he pleases. If one country collapses, you should be able to move you money and be competitive worldwide.

Real estate investments are assets limited to the environmental factors - imagine selling and moving the money, it will take months for the transfers, plus fees and taxes. You can buy shares in property companies - the stock market is available for every single aspect, derivatives, bonds, gold shares and so on. With day trading, there is no waste, cash is transferred into your account immediately. That's what the extremely wealthy investors do. Day trading is part of their routine - so why shouldn't you go for it?