A lot of people who decided to make money online choose trading. And that is a good choice, but do you know what is online stock market and how to trade? I’m going to introduce you to the topic step by step
Different kinds of stock markets
There are a few different kinds of stock markets, but we are going to focus on one of them. Traditional stock exchange is addressed to rich people who are able to invest a lot on money in shares. You need to have around $100,000 to invest, otherwise it doesn’t make any sense. Dividends you’ll receive are very low if you invest a smaller amounts of money.
Future exchange is the type we are going to focus on. It’s because that everyone can start investing there. You need around $100 to start on Forex and from $1000 to start investing in other markets. These are not amounts set in advance by the brokers, but in my opinion, giving real, satisfactory profits. It’s up to you, how much you want to invest, the more the better.
Future contracts belong to the group of products called financial derivatives. In this case investor doesn’t own any of assets traded, but he only speculates about price changes. That means you don’t need to produce or buy the physical goods, such as oil and many others, and you still have the opportunity to make money from it. The buyer wants to get a specific asset, not in the moment of purchase, but in the future. In the other side, the seller presents an offer, which is the future contract for the asset.
In that time the broker platform ensures the so-called standardization of business contracts (their quantity, quality and deadline) and gives the whole business relationship a seal of transparency and security.
Despite all these advantages the future contracts could not be available for everyone as the initial capital for trading is something around $3000. But you can still open your account within initial deposit of only $100 or even less. It’s because the most of brokers offer the future contracts trading in the form of CFD Contracts, and this is what we are going to focus on.
CFD contracts have an option of leverage, and leverage allows to trade positions with a much larger volume then your deposit. If you have not enough money to trade the larger volume, you can easily trade with smaller capital using the leverage. The market is decentralised and all the orders are processed directly by the broker.
What is being traded?
Future contracts are not the only derivatives that you can trade. Much more common and popular among the public are the so-called CFD products. In this case the trader does not conclude a contract with the exchange, but only with his broker. The most popular CFD products are
- Forex – foreign currency exchange. Trader speculate on the price changes between the currency pairs. For example USD/EUR – one of the most popular currencies pair
- Resources – such as gold, silver, oil, corn, coffee etc
- Stock indices – for example DAX, NASDAQ, S&P 500 which are the most popular
- Shares – you can buy the shares of other companies, like Nestle, Google, NVidia and others, keep them, receive dividends and sell when its price goes up
- Future contracts
- Cryptocurrencies – Bitcoin, Ethereum and plenty of other cryptocurrencies and tokens. There are also cryptocurrency only exchanges, like Binance or ByBit, but we are going to talk about them later.
All of them are derivative instruments, that means you won’t be an owner of the assets you buy, but a price speculator.
How the current trading works
Years ago people had to attend to the place full of a shouting traders and the graphs on the wall to try. Obviously they were risking loosing there money, especially if they were beginning their financial journey.
But today is different. You only need to have an access to computer or mobile phone connected to the internet, where you can download a trading platform. It’s an app, which shows the real charts of trading instruments and through it you place trade orders. Trade orders are sent into the market and tailored to the contractors.
You have to open your account with a brokerage firm to complete this process. The broker acts as an intermediary, which is connected directly to the market, where your orders are sent. Any trading profits are going directly to you, but the losses are staying in the market or going to the broker.
The entire process is automatic. Once you open your account, you only need to operate your own transactions, what is technically very easy – just click the appropriate button.
It really doesn’t matter, what instruments you are going to trade with. In all the cases you’ll need a software – trading platform which is your open gate to all the financial markets in the world.
The main task of the trading platform is to connect you to the market and show you the current price of the instruments you are interested to trade. They include a few of different kinds of charts and diagrams, time intervals, so you can check how the price changes in the specific period of time. That are very helpful tools for analysis. Another important and helpful tool, that trading platforms offer, are indicators.
As I said, the trading platform is a software that could be downloaded on your computer, but also mobile versions are available, and I recommend to use both to have a full control of your transactions wherever you are. Some brokers (especially cryptocurrencies broker, like Binance) offer their own platform, but definitely the most popular and one of the Thea in the world is Meta Trader 4 or Meta Trader 5, which you can download for free.
The main benefits of trading CFD
Now you know that the traditional stock market is not for everyone, but for narrow group of rich people who can afford the risky investments of very large amounts of money. Don’t worry about them, let them do that. We are going to focus on, in my personal opinion, better form of investments, which is mentioned above the CFD contracts trading.
Let’s have a look at the benefits:
- Potential of low-capital trading – when traditional stock market requires tens to hundreds of thousands dollars of deposit to start investing, you can start with even $100 or less. Thanks to the leverage you can increase your earnings. That means this kind of market is available almost for everyone
- High variety of tradable assets – brokers offer a hundreds of assets that you can trade, such as resources, stock indices, shares, FIAT currencies and cryptocurrencies. You can also diversify your wallet, by investing in different kinds of assets
- The possibility of speculation in both, rising and falling prices – don’t worry if the price is going down. When you can see that the market is in bad condition and you expect that the price will go down, then you have a chance to speculate on it to make money. Sometimes you can earn even more and faster then with rising price
- Leverage trading – Leverage is the ratio of the amount of capital you invest in a trade to the funds provided to you by the broker. For example, for the leverage 1:30 and your deposit of $100, you have $3000 that you invest. All the profits are going to you and the difference between your $100 of deposit and $3000 is going back to the broker. Simply said, you earn money 30 times faster in every transaction. Remember that there is 30 times higher risk of loss as well.
CFD contracts market is the most popular online trading. As you can see it has a benefits that are not available in the traditional stock market.
Education and practice
Everyone will agree with me that theoretical knowledge about stock markets is not enough to start trading and eventually make money. You need to learn much more about trading strategies and analysis.
What the brokers offer is a Demo account. It works literally the same as your account with real money, shows current prices and the same charts, but you have a virtual money.
It’s not only for a beginners, advanced traders are using their demo accounts all the time. They test their strategies, which they want to use for a trading with real money.
There is also a plenty of books, webinars, courses and trainings, where you can learn a precious knowledge about markets, investments and trading. Some of theme are really cheap and it’s a good investment in yourself.
If you’ll do your researches on YouTube, there is also a lot of basic knowledge that you can use, but more advanced and effective strategies and techniques are not available for free. Unfortunately they don’t teach us in school such an important and necessary things, so we have to look after that by ourselves.
In the next article I want to show you the basics, a different kinds of charts, formations, analyses and some strategies and techniques, that will help you to better understand the process of trading and you will be able to start by your own.