An Introduction to Online Trading

Firstly, what is online trading?

Put simply, online trading is when a trader buys or sells financial assets using an online trading platform, rather than commissioning an individual or brokerage firm. Online trading has seen an increase in popularity among newbie traders as it allows freedom to trade without the assistance of a broker, as well as offering lower rates of commission and a smaller amount of capital to get started. Nearly all types of assets can be traded online, including bonds, stocks, currencies, futures and options, with minimal fuss and zero office overheads if trading from home. All that is required is connection to the internet and access to a computer. It is important though that those considering online trading have an in depth understanding of not only the process but also the risks involved before starting out to minimise chance of loss. While online trading can be extremely lucrative, there’s potential for loss if not approached wisely. Never bet more than you can afford to lose, and seek advice from an independant financial advisor or broker before starting, as this will enable you to gain understanding and make intelligent bets. A popular type of online trading is in binary options, which we’re going to look at in more detail.

‘Binary Options’

Binary options are derivative products, in that their value derives from the movement in value of a base or underlying asset of some kind. This base asset could be a stock, currency pair or indice, and the point of the trade is to correctly predict the outcome of a ‘yes’ or ‘no’ scenario. Will the value of US/EUR currency pair be above a certain value by 4pm today? Yes or no? If a trader is successful with a ‘yes’ in their bid to buy at say $40, they will earn a fixed amount less the $40 bid price. Binary means there are only two options; yes or no. There are many factors that influence whether a base asset will rise or fall prior to a particular point in time, and these factors are known as ‘indicators’. Indicators include major economic announcements (such as unemployment rates, business news, investor interests, take-overs etc) and a variety of worldwide business/economic figures. Experienced traders use their up to date knowledge of specific markets to predict the outcome of a binary option. The ability to read economic signals and keep up to date with as much market news as possible is key to successful online trading.

Even after intensive research on past and current events there is still no guarantee of success, as sometimes information that would have led to a correct prediction has been missed or misinterpreted. There are some useful tools that can help advise online traders when it comes to generating predictions, such as binary option robots, known as BOTS. Binary Options Bots are advanced pieces of software that automatically analyse large chunks of historical and current market data. They use a complex algorithm to number crunch masses of relevant information and churn out hundreds of predictions within seconds. They can significantly reduce the amount of research an individual trader has to carry out but should only be used to complement and advise, rather than as a fail safe measure for success.

Do I need qualifications to trade online?

You don’t need any specific qualifications to trade online, but a background or even interest in finance or investing, albeit not necessary, will increase your chances of success. While qualifications aren’t necessary, as discussed already an interest in current affairs, finance and the stock market is crucial, and as with any type of trading you will want to minimise costly errors by studying the industry as much as possible before attempting live trading. The markets are changing and reacting continuously so believing yourself to be an expert is dangerous – approach it as a continuous learning curve, continually keeping yourself up to date. Start with small trades that you can afford to lose until you’ve gained the knowledge, experience and confidence to bet higher – but never betting more than you can afford to lose. This is not advisable and can lead to financial losses.

Where do I start?

The best place to start online training is, of course, online! Do your research and find a well established online broker that offers up to date trading platforms, as well as advice to help you get started. Large firms such as CMC Markets and other reputable online broker provide training materials and demo accounts where novice traders can practise with virtual money until they feel confident to use their trading platforms. This is hugely beneficial, as research, while important, is no substitute for experience.

Lastly, tips to help you get started

Never invest more than you can afford to lose although We’ve already discussed this in detail, it is so important not to get carried away and bet more than you can afford to lose, as this can have disastrous consequences. Once you’ve made a profit, use this as a base to  then invest from, slowly building it up over time.

Start small Start by making small investments, increasing the amount after you have gained experience and feel confident to do so.

Ensure you have enough time to dedicate to research Online trading should be approached as a part time job, not as a hobby. It’s imperative that you keep yourself up to date with the latest political and financial news. If you don’t feel that you will have enough time to do this, seek help from a professional who can trade on behalf of you.

Be patient! Building profit from online trading isn’t instant – it requires patience and perseverance. Patience will not only allow you to make informed, rational bets, but you will require patience if you want to see your income rise, as everyone will experience losses. Ideally you will build profit and use this to trade, making educated bets and having made enough profit so that you can afford to stomach any losses. If you persevere, as your experience grows you are far more likely to succeed and find online trading to be a rewarding and profitable experience.

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