Trading, at its simplest, is the act of buying and selling financial assets with the aim of profiting from price changes. The assets can vary, including stocks, currencies, commodities, indices, cryptocurrencies, etc. Traders aim to buy low, selling when the price rises, or vice versa in short selling, depending on the direction they expect the market to move.
Online trading platforms and apps offering fast execution and affordable fees mean that trading is no longer limited to professional investors or large institutions. Anyone with internet access and a basic understanding of the markets can start trading.
One of the most popular methods of trading for beginners is CFD trading (Contracts for Difference). This allows you to speculate on price movements without owning the underlying asset.
This guide to trading for beginners will help you understand the basics of online trading.
It will cover:
● How it works
● What you can trade
● What is CFD trading?
● Key platforms and tools for beginners
Whatever your goals and ambitions for trading, understanding the basics is essential.
What is trading?
Trading involves active participation in the market, where traders aim to capitalise on short-term movements in asset prices.
Unlike investing, which focuses on long-term growth and typically involves holding assets for extended periods, trading is characterised by a shorter time horizon. Traders can utilise various strategies, including technical analysis and market indicators, to identify potential entry and exit points for their trades. This active approach requires constant monitoring of market trends and the willingness to react quickly to changes.
Trading tends to involve higher levels of risk due to its fast-paced nature, making it essential for traders to have a well-defined strategy and risk management plan. Ultimately, trading aims for quick profits, while investing seeks to build wealth over the long term through compounding returns.
How Does Trading Work?
The goal of trading is to profit on price movements on financial assets. Whether you’re trading stock, forex, or cryptocurrencies, the process generally follows the same steps:
- Open A Position
You begin by opening a trade based on your analysis of the asset and its future market behaviour. If you believe the price will rise, you "go long" or buy. If you think the price will fall, you "go short" or sell. If you're trading CFDs, you're not buying the actual asset; instead, you're taking a position on whether the asset's price will rise or fall.
- Monitor the Market
It is important to monitor price movements as soon as your position is live. You should also follow any related news and indicators that could impact the market. Traders typically use a range of tools, such as real-time charts, technical indicators, and any financial news feed, to inform their decisions while the trade is open.
- Close the Position
When the time is right, you close the position to lock in a profit or limit a loss. The difference between the opening and closing prices will ultimately determine your gain or loss.
How This Works in Practice
If you expect the Euro to weaken against the US dollar in forex trading, you could open a short position on the EUR/USD currency pair on an online trading platform. You can close the trade for a profit if the Euro drops in value. If it then rises, you take a loss.
Trading requires prediction, selecting a position, monitoring, and choosing the right time to close your position. While the process is simple, successful trading requires discipline, timing, and the right tools.
What is CFD Trading?
If you're interested in online trading, you've likely come across the term CFD trading.
But what is CFD trading, and what makes it such a popular option among retail traders?
CFD stands for Contract for Difference. It is a type of financial derivative product that allows traders to speculate on price movements across different markets, such as stocks, forex, indices, and commodities, without the need to own the underlying asset.
Instead of buying a share in an asset or the asset outright, you enter into a contract with a broker to exchange the difference in the price between the opening and closing of a trade.
So, what is CFD in trading terms? Simply put, you buy (or go long) if you think the asset's price is likely to rise, or you sell (go short) if you expect the price to fall. When you judge market movements correctly, you make a profit. If it moves against you, then you take a loss.
If, for example, you believe that Apple shares will rise in price, rather than buying the stock, you open a CFD position. If the cost of Apple shares increases from $200 to $210, you profit from the $10 move per share without ever owning the shares. Conversely, if the price falls, you cover the cost of the loss.
Flexibility is key to CFDs meaning in trading. CFDs are used across asset classes and markets. They're also highly leveraged, meaning that you can control larger positions with a small deposit (known as margin). Leverage also increases your risk, meaning that correct risk management is essential.
Our Beginners Guide to CFDs provides more information about CFDs, how they work, and how to increase your chances of success as a CFD trader.
What Can You Trade?
There are a wide range of markets available to trade. Many of them can be accessed through CFDs or a trading account with ActivTrades.
Here are the most commonly traded asset classes:
- Stocks
Trade on the value of individual stocks across global markets: Shares Trading.
- Forex (Foreign Exchange)
One of the most liquid markets in the world, forex trading involves speculating on currency pairs like EUR/USD: Forex Trading.
- Indices
These represent the performance of a group of stocks on major markets, such as the S&P 500 or FTSE 100. This is a good way to trade overall market trends: Indices Trading.
- Commodities
Prices for assets such as gold, oil, or natural gas are influenced by global supply and demand. These can be traded using CFDs: Commodities Trading.
- Cryptocurrencies
Highly volatile digital currencies such as Bitcoin and Ethereum can offer high rewards with accompanying higher risk for traders: Crypto Trading.
Every market has its own risk profile, advantages and risks, so it’s important to take time to explore them fully. Choose assets and markets which match your goals, risk tolerance, and trading style.
How To Start Trading For Beginners
If you've reached this stage and you're wondering, "How can I start trading?" or "What do I need to begin?" the place to start is with the right trading platform. This is the software or online interface that connects you to different markets and trading environments.
Whether you're trading shares, forex, indices, or crypto, it's where you place orders, monitor data, and manage your trades. This makes your choice of online trading platform incredibly important.
For beginners, the best trading platforms provide a mix of accessibility, functionality, and ease of use.
Here are the key elements to look for in an online trading platform:
- Real-time market data
Accurate, live pricing is a basic requirement for anyone serious about trading. Instant information enables traders to make informed decisions.
- User-friendly interface
A good trading platform should be easy to navigate, offering clear, intuitive controls. This makes it easier to learn and execute trades, reducing the risk of errors.
- Demo trading
Before you begin risking real money, you should learn how to trade, use the platform, and build up some experience of the markets. Demo accounts allow you to practice for free, giving you a simulated trading experience.
- Mobile trading app
A good trading app should allow you to monitor and manage trades on the go.
ActivTrades provides several beginner-friendly online trading platforms. These are designed for ease of use, reliability, and speed, whether you want to trade on desktop or mobile. They provide powerful tools that are tailored to help new traders develop their experience and knowledge.
Before you place your first real trade, it’s essential that you use a demo account to understand the platform and test your strategy.
Learn to Trade as a Beginner
If you’re wondering how to learn trading, the best approach is generally to combine self-education and using a demo account.
A wide range of educational resources, articles, guides, videos and webinars are available. ActivTrades offers a variety of learning materials designed specifically for anyone wondering how do I learn to trade.
These include:
- Trading seminars
- Live webinars
- Step-by-step trading manuals
- A free demo account to practice without risk
What is Trading for Beginners: FAQs
What is trading?
Trading is the act of buying and selling financial assets like stocks, forex, or commodities to profit from price movements.
What is CFD trading?
CFD trading allows you to speculate on the price of assets without owning them. You can go long (buy) or short (sell) with leverage.
How do I start online trading?
Open a trading account with a broker like ActivTrades, explore the online trading platforms, and begin with a demo account to practice.
Is trading good for beginners?
With a cautious approach, practice, and education, beginners can learn to trade successfully. Start with small amounts and focus on learning careful risk management.
What can I trade online?
You can trade a variety of assets including stocks, forex, indices, commodities, and cryptocurrencies.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
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