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.

Understanding How Trading CFD At XTrade Works

Trading CFD is the term that experts at XTrade use to describe when people make a trade on the difference between the point where the trade is entered and exited (The Contract for Difference). The CFD is an instrument which reflects the movements of the asset being traded. It is what allows for a profit or loss to be realised when the asset moves in relation to the position that was undertaken. The underlying asset is not actually owned when someone is trading CFDs. All that happens is that a client makes an agreement with a broker.

The Popularity Of Trading CFD Rises

The idea of trading CFD has really taken off in the last few years – it has become one of the most popular forms of trading as people find that it is more convenient, and faster, than actually buying the asset itself – whether the asset is a share, a currency pair, or a commodity.

CFDs are popular in part because brokers like XTrade require much smaller margins for them than they do for traditional assets. A traditional broker may expect a 50% margin, which means that you need to put down a lot of money to get started with worthwhile trades. A CFD broker will allow people to trade for a margin of around one tenth that – which means a much, much smaller outlay.

Before you get too excited, though, note that when you enter into trading CFD, the position shows a loss that is equal to the size of the spread. Before you can even break even, the stock will need to appreciate by the size of the spread. That, essentially, is the commission that you are paying to the broker. So, at that point you are not making much of a profit.

Where things get appealing, though, is that if the stock continues to appreciate, then the gains will be bigger, in percentage terms, than they would be on the owned stock itself.

Benefits Of Trading At XTrade

CFDs offer the benefit of more flexibility, higher leverage, and, once that ‘commission’ is paid off actual gains (whereas there will be commissions and other fees to worry about with other trading methods). The lower margin requirements mean that traders at XTrade can enter the market more easily – however because the leverage is increased, this means that both gains and losses are amplified. You run the risk of making a massive loss if things go wrong with trading CFD – but the same could be said for heavily leveraged accounts with any other form of financial instrument.

Most CFD brokers, XTrade included, offer products all over the world, for all kinds of asset. This means that you can pick something that you are confident in trading, and likely enjoy better success than you would if you were limited to trading in more specific niches.

The CFD market does not usually have a short selling rule, so you can short the asset at any time, with no extra cost. This is something that is not common in other markets, and is a big benefit.

6 Day Trading Strategies for Newbies

If you have just entered into the exciting world of day trading, or are considering such a move, it’s critical that you are well educated before you put your money on the line. There are some very basic concepts in regards to trading that, once learned, appear to be common sense; however, most newbies have no idea at the outset of their trading career and suffer tremendous losses as a result. With something as potentially profitable or risky as day trading, you absolute cannot go in head first without looking. First, you must understand that there is a method to the madness. There is a reason why some traders find repeated successes while others have a consistently difficult time. If you don’t want to end up broke after your initial stint in trading, it’s wise to learn from the mistakes of those who have failed and the strategies of those that have succeeded and continue to succeed. If you choose to rush in, you might as well save yourself the time and energy and donate all the money you planned on investing to some charity or other. Don’t do it! Take your time, watch the market, and learn as much as you can before making that first trade. 

Strategy 1: Preparation and Education – Although, this has been pretty well covered in the above paragraph, it is important enough that it should be reiterated and remembered again and again.  However, once you’ve made it past your initial self-education on the subject of day trading, you will need to prepare before each trade you make. This is a simple, but incredibly important, process. Avoid unplanned trades at all costs. Study up on the market and be totally certain and ready for your trades before the market opens. This is critical if you are to avoid the typical trading pitfalls and find success in your day trading career.

Strategy 2: Use the Trading Gap to your Advantage – If you are not already aware of the so-called “trading gap,” it is a term that refers to the change in price levels between the open and close of two consecutive days. There are a variety of ways to take advantage of the trading gap and they each should be studied carefully. 

Strategy 3: Focus on the Market, not the P&L Account – Don’t get caught in the trap of focusing on the profits and losses of active trades. Instead, keep your attention glued to the chart price. When properly prepared, your stop should be a predetermined amount of risk. Consider the active trade’s profits and losses to be an unnecessary distraction. It can also cause you to get an incorrect impression about how well your trade is doing. Focus on the chart price and let your stop do its thing.

Strategy 4: Keep it Simple – Day trading can be complicated enough without an overly complex strategy or trading plan. The simpler your core system and plans are, the better it will be for you in the long run. You don’t want to set yourself up for confusion. Confusion will lead to bad trades and losses.

Strategy 5: Forget the Big Move – An all-too-common pitfall of day trading, is the quest for the big move that will make a fortune. It’s true that such moves can be done, have been done, and will be done, but it is usually the result of luck in one way or another. This type of mentality will, in the end, lead to bad trading moves. The goal should be to make consistent small moves that will add up over time. The small move strategy will also minimize risk and losses when a trade goes south. 

Strategy 6: Tenacity – Like any field where the end goal is highly desirable for a large number of people, the majority of traders who fail do so because they give up. The fact remains that the only way to succeed is to stick with it until you are successful. It takes time to understand the market and to get a “feel” for trading. You will have a variety of small successes and failures. However, you can’t actually fail unless you give up. It has been said that if you haven’t succeeded, it’s because you haven’t allowed yourself to fail enough times. This is true for everything and day trading is no exception. Persevere and own it.  

10 Things Every Trader Should Know About the Forex Scalping Strategy

scalping1Forex scalping is a popular strategy employed by traders who want to spread their risk. Instead of a few large deals, they’ll break their deals down into lots of small ones. These deals will be placed (and will last) for five minutes at the upper end. Some might only last one minute.

It’s designed to take advantage of the latest market trends. Successful scalpers can be just as successful as day traders. Some investors might want to consider employing scalping as part of an overall trading strategy. They could place same day trades and spend the rest of the time searching for scalping opportunities.

In this article, we will focus on some of the most important aspects of the scalping strategy you should know about. In the meantime, I have found iforex to be a good resource for extra reading, they have a nice introduction to the strategy and explain how it works.

1. One Strategy

The Forex scalping strategy isn’t actually a strategy all by itself. It’s a term used to describe what could actually be multiple strategies. The only prerequisites for a strategy to fall into the ‘scalping strategy’ category is the trade lasts no longer than five minutes and the deal is small in relation to your total bank roll.

To learn how to scalp properly, you’ll need to learn about how to effectively wield scalping in a range of different situations.

2. Waiting Until the End

You don’t have to wait until the end of your trading period to pull out of the trade. Whilst some guides to scalping will say this great Forex strategy needs to run for the full four or five minutes, it doesn’t. Utilise common sense and pull out of the trade if things have gone south quickly.

This is a high volatility market. Your success depends entirely on your entry point. If you entered at the wrong time, feel free to stop the trade and pull out immediately.

3. Scalping Times

Although one of the most important Forex attributes is the market is open 24/7, this doesn’t mean scalping is available 24/7. Foreign exchange trading relies on high volatility to succeed. Without it, nobody would make any money. Scalping relies on high volatility to a greater extent.

During quiet periods, attempting to scalp will be quite pointless. Chart the progress of the four main stock markets of the world. These are London, New York, Tokyo, and Sydney. See when the market reaches its peak of volatility over the course of a few days and work out when the best times to trade are.

Example Image, Source: Flickr

Example Image, Source: Flickr

4. Bankroll Management

Scalping might lower your risk by placing lots of small deals, but this has the side effect of easily losing track of how much your bank roll can take. Effective bank roll management means being able to set limits for yourself, and monitor how close you are to those limits.

With any scalping strategy, think of the worst case scenario. It involves some simple maths calculations. If you lose your next ten wagers, will you be able to handle it? If the answer is no, you know it’s time to rework your strategy.

5. High Volatility Currency Pairs are for Experts

Most people choose to trade in the EUR/USD and GBP/USD currency pairs. These are well-known currencies with medium volatility. In other words, most UK traders will find these ideal for employing a scalping strategy.

High volatility currency pairs, on the other hand, should be avoided. These high volatility currency pairs can switch within seconds and destroy your investment. Unless you’re an expert, or are employing quick 60-second trades, it makes sense to stick to medium volatility currency pairs to spread your risk.

6. Price Freezes

Sometimes, the price will freeze and this will eliminate your scalping deal. If the price freezes at any level, get out of the trade. This applies even if your wager is below your entry point. Once a price freezes the trend has stopped. You’re now in day trading conditions where the graph could go anywhere.

7. High Concentration

Unless you can concentrate for long periods, you won’t find any profitability from scalping. You need to have a number of successful investments to make yourself profitable. One small slip in concentration could mean entering at the wrong point and breaking away from the trade too early.

8. News Lines

Since fundamental analysis will impact the technical readouts you’re getting from recent price histories, you need to keep updated on the latest news. Without proper fundamental analysis, you won’t see when something nasty is on its way. Things change quickly within financial markets, so it’s best to be prepared.

Keep a news line open on your computer. This will enable you to get the latest news as it breaks.

9. Understand the Main Trend

If you look at the trend of anything, whether this is currency pairs or stocks, you’ll see the line is always jagged with lots of ups and downs. Observe the general trend each day before you start to scalp. You’ll be able to spot whether the market is bullish or bearish. This will give you some additional information on what you should do today.

It’s also wise to check out what’s happening on the stock market. The performance of a country’s main corporations can significantly impact currency values.

  • 10. Know When to Stop

The best traders always know when to stop. This is a rare trait that the majority don’t possess. It’s why only a minority can make thousands of pounds from scalping in a short period of time.

If you’re losing heavily, it’s time to walk away. Again, this harkens back to proper bank roll management. Make sure you review your bank roll at the start of every day. Set yourself a limit that you can write down. If you fall below that limit, walk away and try another day.

Once an investor starts to become emotional, their chances of success collapse. You can’t afford to enter this state. Learn discipline and know when to walk away. That’s the most important investing lesson you’ll ever learn!

5 Reasons Why Day Trading is Dumb

You’re looking for a new investment strategy, and you’ve been reading a lot about day trading. It’s hip. It’s cool, and everyone who’s anyone is doing it, right? Not so fast. Day trading is the buying and selling of securities (i.e. stocks, bonds, etc.) within the same day. Usually, this happens online and trades are made based on small, short-term fluctuations in the price of the underlying security.

For example, let’s say you want to day trade a particular stock. You get yourself hooked up with a broker you found through BrokerStance, and you’ve gone through the red tape of opening a trading account. Now what? Well, you start looking for stocks to invest in. You have access to technical trading software, so you spend a lot of trading days staring at the computer screen, looking for trends in the market.

You spot one, and buy up a particular stock. Then, as the day drags on, the stock jumps erratically. You sell off your position and make a few bucks. That’s day trading. It doesn’t sound too difficult, so why should you avoid it?

You Will Eventually Feel Suicidal

There’s something about losing money that’s completely unappealing for most people. In fact, most people are risk-averse investors. They don’t want to take crazy risks. More than that, they want the lowest risk, highest reward scenario possible. That’s just not possible with day trading.

Day trading is a high-risk activity with questionable, random return. Sure, it’s possible to borrow $5,000 from a friend and turn it over into $25 million in a year. Almost no one does it though. And before you go off thinking that you’re special or different, consider the psychology of averages for a moment.

Everyone, if asked, thinks they are “better than average” or special in some way. The truth is, by definition, most people are average. That’s what “average” means. It means there’s a small percentage of people who are exceptional and a small percentage of people who are really terrible. Most people are smack-dab in the middle.

Unless you’ve got 20 years of trading experience behind you, you’re a rank amateur. If you don’t have a major firm bankrolling you, you’re taking incredible risk for what is arguable a low return over the long-term. When you’ve had the worst trading day or week that you’ve had to day, and this can realistically happen every week if the market trends are against you, you’ll feel like you want to kill yourself. Is it really worth it?

You Rack Up A Lot Of Unproductive Hours

At the end of 50 years of day trading, you haven’t built a business, you haven’t learned any new life skills, you haven’t networked or done anything productive. You’ve learned nothing new about this fantastic world around you. You’ve just been staring at blips on a screen and trying to guess which way those blips will move.

You may have made some money, but so what? You didn’t really know why you made it or how you even got to where you are now. Ultimately, you’ve been unproductive, and that takes a toll on most people, psychologically, when they sit back and reflect on it.

Eyestrain

Looking at a computer screen all day will eventually give you almost permanent eye strain. You’re looking at red and green numbers, lines, and reading high-contract data all day, every day, for 20, 30, 40, even 50 years. Be prepared to wear glasses and slowly go blind with all that near work.

You’ll Have No Social Life

If you’re the anti-social type, you might not mind never getting married, never having friends, and never meeting new and interesting people. But, if you’re like most people, you’re an ambivert. That means there are times when you feel like being alone, and being alone “recharges” your emotional and psychological batteries, and there are times when you need to be around other people to feel “seen” and psychologically healthy. You’re not going to get the social integration you need when you’re in front of a computer for 12 – 16 hours a day.

It Can Be Bad For Your Health

When you lose a trade, and it’s going to happen often, the temptation is always there to bury your losses in pizza, ice cream, chips, and other junk food. Obviously, that’s not doing your arteries any good and it could lead to an early grave. What good is the money if you can’t enjoy it. Plus, if you’re prone to high blood pressure, or have any other existing health issues, the financial stress of the wild swings in the market (and the fact that you rely on the market to pay your bills) means that you’re most likely going to exacerbate any and all of those health issues. Not good.

Jarryd Harden likes keeping up with the latest trends in day trading. He also enjoys sharing his insights online.

Learning How to Invest in the Financial Markets

If you wish to invest in stocks, bonds or commodities, learning how to do this can be a daunting task; more so if you wish to trade professionally within a financial institution. There are opportunities to learn and support available for aspiring traders now, unlike the past where those interested in stock trading did not have any of such information available to them. Read on to find out more about trading on the financial markets.

It is important to get an understanding of how the financial markets work. News publications such as the Financial Times and online news resources such as Yahoo Finance are great ways to keep up to date with current financial affairs that maybe influencing the markets. It is also good to get into the habit of checking the news regularly since this is something you will likely be doing if you wish to invest or trade professionally as you would ideally stay updated with the latest happenings in the world that could potentially affect the markets.

To get a better understanding of what a trader’s job actually involves and what investing in the financial markets really means, attend a trading workshop. This will give you an overview of trading and you will have the chance to speak with professional traders and other people looking to learn how to trade, that are in the same position as you.

Trading courses will also help you to build an understanding of the theory of trading. You will learn how the financial markets operate and will have the opportunity to experience trading first hand. There are a number of trading courses available so it is important to find one that is right for you.

Trading internships can help develop your trading skills and knowledge by giving you hands on experience. They allow you to put the theory that you have learnt into practice and see what the day to day life of a trader is actually like. This experience will be invaluable when looking to become a professional trader within a financial institution.

Investing in the financial markets or looking to trade professionally within a financial institution can be daunting, but the resources and support outlined above can put you on the path to achieving your trading goals. You can find out more about learning to trade by clicking here.