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Trading Basics
Online Trading
Online Trading for Beginners
Here is a beginner's guide to online trading and discovering new ways to seize opportunities in global financial markets.
June 22, 2023
Introduction to Online Trading
Online trading is a way to generate wealth by buying and selling assets in financial markets.
A variety of financial products can be traded, including company stocks, currency pairs, and commodities like oil in global markets.
Contracts for difference are derivative products used to trade on the price changes of an underlying asset rather than owning the asset itself.
Using leverage allows you to trade larger positions with less capital, giving traders the opportunity to earn profits faster.
Anyone can trade online by creating an account with a broker and practicing using a demo account.
What is online trading?
Online trading involves buying and selling products in digital financial markets with the aim of making a profit. The broker provides clients with an electronic trading platform through which trading is conducted, meaning that anyone can access global markets. Traders can use mobile phones, computers, and other smart devices to execute their trades and manage their trading portfolio from anywhere in the world.
Traders make profits by speculating on price movements rather than buying and holding the underlying assets. For example, if you invest directly in gold, you will physically own the gold and store it; but if you want to trade gold against the US dollar (XAU/USD) in the form of a contract for difference, you will trade based on your expectations of whether the price of gold will strengthen or weaken against the US dollar.
This type of trading occurs in a secondary market, where investors can resell products to other investors in order to benefit from unexpected price changes.
Market prices are affected by supply and demand, which in turn are influenced by several factors. Generally, the price of a product increases with rising demand and decreases with increasing supply (or decreasing demand). Such changes in asset value are called 'volatility,' and their occurrence creates opportunities for traders to make profits.
The difference between trading and investing
Both traders and investors aim to build their wealth by buying and selling financial products; however, there are some important differences between trading and investing. Traders profit by predicting price movements of the asset without owning the actual financial assets, and this is done through financial contracts or contracts for difference (CFDs). A contract for difference is an agreement between the buyer and the seller that allows them to trade on the price difference (the margin) without owning the underlying asset. Traders can also use CFDs to profit in the event of a price decrease, unlike traditional investing. If you expect the value of a product to rise, you can execute a 'buy order' with the aim of selling it at a higher price in the future, and you can also sell the product 'or short sell' if you expect its value to decrease. If your predictions are correct, you will make profits.
Investing and buying assets directly requires significant initial capital, unlike trading contracts for difference, which allows you to take financial positions by depositing a fraction of the total price of the financial asset. Leverage and margin are two key elements in trading CFDs. Leverage means that you can deposit a small portion of the trading volume you wish to control using funds provided by your broker or liquidity provider. For example, if the leverage is 1:20, this means you can make trades worth $2000 for an investment of $100, resulting in amplifying the amount of profit or loss that can arise from your trades. While margin refers to the initial amount (a percentage of the total price) you need to invest to open a position.