What is trading and how to get started?

What is Trading?

Trading consists of analyzing the market followed by placing an offer to buy or sell. The market means the totality of relationships between all participants in the interbank economic system. For example, the securities market is all the trades in the world carried out at a given moment involving bonds, futures, options, etc. Banks, large companies, financial institutions, and private traders are constantly buying and selling assets and forming market relations.

A trader is a buyer, seller, or other market participant. It doesn't matter what specific asset he manipulates toward making a profit. It can be currency pairs in the Forex market, cryptocurrencies on an exchange, or commodities such as crude oil. Trading means buying and selling assets while following your forecasts for changes in the market situation to gain a financial advantage.

What assets can be traded?

The list can seem endless since trading is buying and selling everything that has value in the world’s marketplace. For example, Forex is trading in currency and payment documents confirmed by it. Currency quotes are constantly changing. Therefore, analyzing the market, you can buy one currency for another at a certain moment and then sell it gainfully to make a profit.

Similarly, there is an opportunity to make money on securities, primarily stocks, and bonds of large companies. Shares, among other things, generate profit in the form of dividends (interest payments from the company's profits, equivalent to the investor's contribution). Securities include futures, which are contracts that stipulate in advance at what moment and at what price an asset will be sold.

Trading is also trading in consumer goods, i.e., commodities. This includes a significant range of assets, such as commodities, raw materials, energy carriers, and precious metals. All of these can be traded on markets by selling and buying an asset at a certain time to make a profit.

There are also stock indices. They are determined based on the so-called index basket, which includes a group of similar securities. For example, the CAC 40 index includes the stocks of the forty largest companies in France, regardless of their field of activity, while the Nasdaq index is a collection of stocks of the leading US companies in the field of IT. The movement of the indices can be predicted in such a way as to render a profit.

Finally, trading in cryptocurrencies is a relatively new trend. This asset is extremely volatile, which means price changes occur at a high speed. That makes it possible to make many trades in a short time, buying cryptocurrency cheaper and selling it at a higher price. Often, such investments can be successful in the long term, too, but this requires in-depth market analysis.

5 things a novice trader needs

So, now you know what trading is, but that is not enough to make a profit while trading. Below there are five components of successful trading. If you exclude one of them, you will not be able to make money trading.

Knowledge

In this general article about trading, the basics are given, only the broad information necessary to form a solid understanding of the topic. Near-expert knowledge is required to trade and earn a profit. But it is not necessary to have an economic education or to practice for 10 years or so. However, you will have to read several books on stock trading, watch a couple of video courses, and carefully study text guides. In other words, you will have to work at, work hard at it, and be committed. Innate genius or being super lucky will rarely favor your efforts. Diligence is the operative word here.

The advantage for the modern trader is in the globalization and informatization of society. Today, many brokers offer high-quality training systems that allow you to learn what trading is and to obtain sufficient initial knowledge in the field of professional trading in the shortest time. This opportunity cannot be neglected.

Broker

After obtaining more dedicated knowledge, you need to choose a broker that will give you access to the interbank market. This point is conceptually important because a good broker creates comfortable conditions for novice traders, helps not only in technical, but also fundamental analysis, and offers protective mechanisms to reduce trading risks.

Often, novice traders choose unverified companies and lose money not because of their mistakes in forecasts, but because of scammers or unreliable brokers. Or it may happen due to technical problems of the platform. Therefore, it is necessary to find a licensed reputable broker who is highly regarded by the Traders Union and provides concrete guarantees.

Start-up capital

How much free funds do I need to start trading on a professional level? This is the key question novice traders ask most often. There is no need for a large budget. Most brokers today offer leveraged trading on margin or a low initial deposit. Leverage is when you place a bet and the broker increases it using its own funds.

For example, a leverage of 1:100 means that you are betting $10, but the total bet is $1000 plus the broker's credit. And, accordingly, you will receive profit from $1000, and not from $10.

The optimal start-up capital is around $200-500 of your own money. If you have just recently learned what trading is and are just starting to explore this area, there is no point in risking large sums. The first bets of start-up traders often fail, this is normal, you need experience. Therefore, $500 is more than enough. Note that many brokers, for example, RoboForex, allow you to start trading from as low as $10.

Trading strategy

Despite the apparent obviousness of the definition, people who are not associated with trading rarely have the correct imagination of what a trading strategy is. For example, many people know that there is scalping, position trading, day trading, and swing trading. These are not strategies, just trading styles.

There are algorithmic trading and discretionary trading, the so-called news trading, and the high-frequency method. From the point of view of technical analysis, you can trade reversal or breakout, trend or consolidation. All this, of course, will seem difficult for a beginner, in fact, you just need to gain theoretical knowledge and start trading, perfecting them with experience — as you go.

This is how a trading strategy is formed, which is a set of rules by which a trader trades. The style of trading, the methods used, and the priority of sources for fundamental analysis. All of these and more go into establishing a trading strategy. And each trader will have his own. So, how can you tell a good strategy from a bad strategy? A successful strategy results in profit; whereas, an unsuccessful strategy results in losses.

Devices

Today, trading is an opportunity for everyone, without exaggeration. You trade through a broker using a trading terminal. This is a dedicated software program that can be installed on a personal computer or mobile gadget, such as a smartphone. The device does not need advanced power, only a high-quality internet connection.

For example, the most popular trading terminals are MetaTrader 4 and MetaTrader 5. They have mobile versions for Android and iOS devices. Additional tools like SMARTx, MetaStock, Thomson Reuters Eikon, and Bloomberg Terminal may require more power. But the same Bloomberg Terminal is already top class for the market sharks.

Is trading a risk? Can I lose money?

We have already indicated that the main risk is associated with the loss of a bet (or part of it) due to an unsuccessful forecast. For example, suppose you assumed that shares of Company N would rise, and you bought them now to sell a month later at a higher price. The shares did rise for a while, and then the main competitor of company N announced a merger with another competitor, and the newly-formed company received most of the market. As a result, the shares of company N began to fall rapidly and you were out of luck, you didn’t have time to sell them in time to at least break even.

Such situations are not uncommon in trading, and beginners need to understand that they can lose their bet at any time. The risk is especially high when trading options, where you bet on the fact that the price has changed and you will not be able to try to sell the asset, albeit with a slight loss, if you made a mistake. But the earnings potential of options is also higher because there is a chance to practically double the rate with a successful forecast. Indeed, the battle cry when trading options is usually "All or Nothing!"

Best brokers for beginners

So, the success of trading largely depends on the trading conditions of the broker with which you cooperate. Moreover, it does not matter what assets you trade, but the broker must be reliable, licensed, proven, convenient, and with low commissions.

The experts at the Traders Union regularly monitor the full list of brokers and offer a consolidated rating of each. Below is a brief description of the leaders. Here are the best brokers for novice traders.

RoboForex

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The company has been operating since 2009, is regulated by FSC Belize and CySEC; the licenses are valid. The broker provides several types of accounts for trading Forex currency pairs, securities, indices, ETFs, commodities, precious metals (such as silver), energy, and cryptocurrencies. It has cashback, leverage up to 1:2,000, and regularly publishes analytical materials.

For novice traders, RoboForex is suitable because it has demo and cent accounts. On a demo account, you can practice for free, and a cent account will allow you to hone your strategy in the real market with minimal risk. The broker has a low entry threshold such as simple verification and a minimum deposit of only $10. It offers high-quality training guides, there is a CopyFX trade copy service.

eToro

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This broker has been operating since 2007, its activities are controlled by CySEC and FCA, and no confirmed facts of fraud or violation of financial legislation have been identified. The broker allows you to invest in securities, including stocks, ETFs, and cryptocurrencies, and you can trade CFDs on indices and commodities with flexible leverage. Commission fees are below the market average, for some types of securities, there are no commissions at all.

This broker is suitable for novice traders because it has a demo account, and the minimum deposit is only $200. The company offers several investment options, including copying trades, ready-made investment portfolios, and staking (when an investor provides a cryptocurrency to a blockchain project for development, he receives interest for this).

FxPro

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This broker has been providing services since 2006 and operates under the auspices of four regulators — CySEC, FCA, FSCA, and SCB. There is trading in currencies, futures, stocks, indices, metals, energy, and cryptocurrencies. The trader can work through the most popular trading terminals such as MT4, MT5, and cTrader, and there is a proprietary terminal as well. The broker provides several tools for technical and fundamental analyses, and it has a profitable affiliate program.

For novice traders, FxPro is suitable due to the existence of a demo account, a variety of assets of different types, as well as a small minimum deposit of $100, and a wide range of passive earning options. The broker offers an educational program on trading, an economic calendar, various calculators, and an updated newsfeed. All this is important to implement a successful strategy and to make a profit.