Here’s a news flash – you don’t have to be on Wall Street anymore to be pursuing a trading career. Thanks to the endless possibilities and tools available at our fingertips, online trading has become extremely popular and accessible in the past two decades. It is very similar to the betting opportunities that you can find at the online casinos for slots and roulette, or perhaps, at some of the top blackjack sites for real money. Trading and gambling are two very different things as well. There are all sorts of platforms, that will allow you to trade stocks, options, and cryptocurrencies online, within a matter of minutes. But here comes the tough one – how to determine where to start?
Well, first and foremost, you need to get familiar with all the market types as well as what skills you’ll need to acquire to be successful at them. It’s really easy to get caught up in the mix of information. Therefore, to help you get started, we have prepared this beginner’s guide where you’ll learn about the most popular types of online markets, the terminology behind them and strategies for execution.
Online Market Trading Explained
Online market trading comes in many shapes and forms, so you’ll need to find out what interests you the most. Because let’s face it – you can’t succeed at something you’re not passionate about. Thus, spending time educating yourself prior to making any kind of investment is extremely important.
As you can imagine, every online market has its pros and cons, therefore, choosing one can be a really tough job all things considering. They do share some things in common, however, such as the fact that you need to use some sort of exchange or a broker, where to perform the actual trade.
The technical analysis is also pretty similar and once you learn how to execute it properly, it will do wonders for you in every market out there. But don’t kid yourself, as mastering TA takes years of dedication and practice. So, let’s get back to the topic in hand and stick to the online market trading types for now.
Online Stock Trading
Online stock trading, also known as equities or shares, is among the largest and most popular ways of online trading. Buying or selling stocks means that you have bought or sold a share from a company that is listed for public trading on a stock exchange, such as the world’s largest NYSE or NASDAQ. In other words, you’ve made an investment into a piece of a company of your choice.
Meanwhile, the company would benefit from their investors, who bought their equity which was listed as a stock in the first place. So, let’s say that you are a fan of Amazon (and how could it be otherwise?) because you think that Jeff Bezos is a rock star and you’d love to become an investor in his company. At first, you have to register in a brokerage platform such as eToro and complete the verification process.
Next, you have to determine whether you want to buy a market order at the current price or a limit order which will execute whenever the price falls below or reaches the limit. Those types of buy orders are a bit more advanced and we’ll not discuss them in detail right now, but we hope that you get the basic idea of what online stock trading is.
|World market cap roughly £53 trillion (44% of which is made of US stock market)||Lower liquidity|
|Roughly £152 billion daily volume||Operates 8 hours per day|
|Better for long-term investment||Higher commissions|
The term Forex originates from the foreign exchange market and could also be referred to as FX or currency market. Currently, the Forex market is the most liquid in the world with more than £4.5 trillion daily volume.
As opposed to the stock trading, Forex trading is executed on the financial markets, where traders convert one type of currency to another in order to make some profit. For instance, if you’re an EU resident where the euro is your domestic currency, and have decided to travel to the US, you’ll need to convert some euros to dollars at the current exchange rate.
But then you’ve decided to keep a $50 note and some years later they’re worth more euros than at the time when you’ve bought them. Now, convert this scenario into a much larger online scale, with market caps and charts to get the idea of Forex trading. A key factor here to beware of is the global economy as well as the economy of the country from which the currency originates.
If you’ve bought Chinese yuan and their economy booms compared to the world economy, and the yuan has increased in value, then ultimately, you’ll make some profit. However, this is just a very basic example and in the real world of FX trading, things are not that simple. So, once again a word to the wise, dedicate time learning the markets before jumping straight in.
|Roughly £4.5 trillion daily volume||Minimal to no commissions|
|High liquidity||Better for short-term investment|
|24 hours market (except the weekends)|
Cryptocurrency trading is the newest and smallest online trading market available which became very popular in late 2017. It has been around for just 10 years and is a highly speculative and volatile form of digital payment. It is built on a blockchain network that is distributed across many computers and records every transaction on it.
One advantage of the crypto market is that it never sleeps, because it’s open for trades 24/7, as opposed to the stock market and it doesn’t rest on the weekends, as compared to Forex. The high volatility of the market is what makes it very appetising for day traders, but also very dangerous. Sometimes swings as big as 30% per day might happen and you’ll need to be an extremely seasoned trader to handle the pressure.
Therefore, if you’re just starting out with the crypto market, it might be wiser just to buy yourself some Bitcoin and hold it for the long run. People who were early investors and put £1000 in Bitcoin when the price was £10 and held it are almost millionaires today in just a few years. Not a bad investment, right?
|Market cap £148 billion||Highly speculative and unregulated|
|Roughly £38 billion daily volume||Less than 0.1% of the world’s total market capitalisation|
|Operates 24 hours per day 365 days per year||Difficult for beginners|
Another popular method of online trading is in commodities such as precious metals and energies. Their price is defined by the supply and demand of the market. As you can already guess, one of the greatest investments anyone can make is in gold, as historically it has proven its store of value. When the stock market is bearish, the commodities tend to move up, which will help you in times of recession and currency devaluation.
Two of the most common ways to trade commodities online are commodity pools, also referred to as CPO and futures options. In short, the investor’s money is gathered by a hedge fund or other form of partnership that combines all the funds and distributes them accordingly in options or futures contracts. On the downside, commodity trading is not very suitable for day traders due to the short duration of the trading hours.
|Great store of value for the long-term||An important part of our daily lives|
|Tends to move in the opposite direction of the stock market||Short trading hours|
Futures Contract & Options Trading
Now those are slightly more advanced types of derivatives, so we’re just going to briefly scratch the surface here. In a way, they’re similar because those trading methods are based on a contract and used for either hedging or speculating with assets.
However, there are also some key differences. The futures contract (also known as futures) obligates you to buy or sell at a fixed price in the future. Meanwhile, the options give you the right to buy or sell an asset at a fixed price, but it doesn’t obligate you to do so.
Most commonly, futures and options trading are used with stocks, bonds, commodities and most recently with cryptocurrencies. There’s a significant contrast in the risk between them, but for now, this information should be enough to give you the basic understanding.
Every government issue bonds which are used as an assurance of bankruptcy of the country. Whenever there’s a financial crisis or need for refinancing debt, governments will exchange the bonds for currency with the central bank. Now, what does this have to do with traders? Well, some government and corporate bonds are publicly traded which makes them a great asset to diversify your portfolio.
The main benefit of a bond investment is that it is considered low risk, especially when talking about government bonds. Another key factor is that they come with a fixed interest rate which will be paid regardless of the market situation.
Binary Options Trading
Lastly, we’re going to talk about binary options which are also among the most popular ways of online trading. Essentially, this is a way of simplified options trading where the traders either receive a pay-out or take a loss on their investment. With binary options, the investor can predict if the price of the derivative is going up or down within a fixed time frame of a minimum of 60 seconds to a few weeks.
While simplified in its nature, binary options are a risky class investment. Therefore, it helps with the risk management that most brokers will allow you to trade a minimum of £10. In addition, some brokers will give you a welcome offer in the form of a percentage of your first deposit, a non-deposit bonus, or cashback.
Online Trading Platforms
Now that you have more clarity of the different online market types and their specifications, we’ll proceed with the online trading platforms. As is the case with online casinos, there are plenty of brokers and exchanges where you can practice online trading. Below, we have listed some of the most popular ones which we consider perfect places for online stock trading for beginners, Forex or other forms of trading:
- NASDAQ – one of the largest US stock exchanges, that lists and tracks shares from different markets, such as stocks, commodities, cryptocurrencies, etc. The platform provides a large amount of news, stock info, and data analysis reports
- eToro – one of the leading all-in-one investment platforms with real-time updates and news feed, where you can see people’s trades and copy them. A great place for both beginners and professionals
- TradingView – an amazing all-in-one charting platform that allows you to track all sorts of markets in real-time. It also provides great community features, majority of charts and blogs to read from which makes it a perfect place for TA beginners and professionals alike
- Coinmarketcap – a platform to monitor price movements and market cap regarding cryptocurrencies
Sources of Information
Every beginner needs guidance, regardless of the goal one’s pursuing. Therefore, we’ve outlined some of the best places to begin your learning curve. Of course, there are many other sources of information available, but we might need to write a separate article just for them:
- Investing.com – one of the largest financial portals on the internet
- Wall Street Journal – multiple times award-winning business-related platform
- Business Insider – an American news website about financial and business-related topics
- Investopedia – arguably the best place to learn financial terminology and strategies
- BabyPips – beginner’s guidance for Forex trading
- Forums – places such as Reddit, Quora and Medium are a fantastic place to find a lot of good info
- Social Media – there’s a vast amount to Facebook groups dedicated to online trading. Also, most of the companies and industry experts are very active on Twitter and LinkedIn, so do yourself a favour and follow them.
Whenever you decide to jump into the world of online trading, you’ll encounter terms you’ve never heard before. In order to help you get started, we’ve listed some of the most common terms that you need to know. So, go ahead and memorise them and you can thank us later:
- Market cycles – the time frame which records the trajectory of the market and are a key indicator for technical analysis
- Market capitalisation – also known as market cap, is the value of a market
- Technical analysis – also referred to as TA, is the process of analysing the historical data of the market on charts
- Fundamental analysis – also referred to as FA, is the process of analysing the environment of your chosen trade. This includes; industry news, company management, and news, financial stability, micro, and macro-economic factors
- Candlestick – one of the main indicators of a chart that display the price movements via green and red candles
- Volatility – when a market is said to be volatile, it means that there are rapid changes and swings, which makes it valuable for traders
- Daily volume – the total amount of buys and sells executed per 24 hours
- Bubble – when a market is in a ‘bubble’ state, that means that it is currently valued much higher than it should be, and it is expected to ‘burst’ soon which will cause a drastic decline
- Bull Market & Bear Market – whenever a price is rising within a sustainable amount of time, we’re talking about the bull market. Vice versa, whenever the price is on a decline, we’re referring to it as a bear market. Those terms are also a vital part of the Market Sentiments
- IPO (Initial Public Offering) & ICO (Initial Coin Offering) – as their names suggest, those terms refer to the opportunity to buy a stock or a coin, before it is officially released to the exchanges. Usually, early investment of that kind could be very rewarding as the initial price is often really lucrative
- Hedge – a way to protect the investor from a loss similar to an insurance
- Leverage – borrowed funds used to invest in an asset
- Portfolio – a collection of assets held by the investor
- Whale – particularly wealthy investors who can drastically change the market’s direction
- FOMO (fear of missing out) & FUD (Fear, uncertainty, and doubt) –those emotionally based attitudes of the investors are capable of moving the market’s direction. They also play a vital part in the FA
- DYOR (do your own research) – you’ll encounter this abbreviation a lot, and it’s usually used when someone gives advice, but at the end, you have to do your own research and don’t follow any advice blindly
How to Protect Yourself – Word to the Wise
Next on our trading guide for beginners, we want to stress the importance of security. With the increment of opportunities of making money online, inevitably, the number of ‘experts’ who want to sell you some ‘get-rich-quick-scheme’ is booming as well. Therefore, be very cautious of the scammers, which is easier said than done. But, how to keep yourself from getting burned? When we make a casino review, we always look at all the important criteria such as certifications and reputation of the provider. So, to keep yourself safe online, consider the following steps:
- Two-factor authentications – or 2FA, is used as an extra security measure against cybercrime; avoid SMS 2FA as it is the weakest and easily hackable. We recommend an app such as Google Authenticator
- Strong passwords – use at least 16 symbols or more, mixing upper- and lower-case letters, numbers etc; write it down on a paper or offline cold storage and don’t tell it to anyone
- Secure emails – especially important for cryptocurrencies, you need to use a separate email from your regular one, which is also highly encrypted, such as Protonmail
- Cold storage wallets – again, really important for crypto investors. You never want to leave your coins on an exchange, unless you’re a day trader.
- Be very cautious – Always research the credibility of the source and their information. If it’s too good to be true, then it most likely is, so take it with a pinch of salt and beware of scammers
Basic Strategies and Tips of Successful Online Trading
Apart from experience, there are many key qualities that separate successful traders from average ones. Given enough time and dedication, almost everyone will be able to acquire those skills. To complete our guide, we’re going to give you our final tips and strategies to use. As we’ve mentioned several times, the list is far from complete, however, it will be a good starting point in order to achieve a higher level of expertise.
- Buy low sell high – probably the most ancient and the most important rule among traders.
- Master TA & FA – history tends to repeat itself, meaning that you can trace back the cycles and use it as an indicator for the future movement of the market using both TA & FA.
- Study the team behind the product – as part of the fundamental analysis you need to do your due diligence on the people who are running the show. Obviously, if the CEO of your asset is Elon Musk, Jeff Bezos or someone of that calibre, you’re pretty much in safe hands.
- Discipline – as in any other area of our lives, successful traders have extremely good self-control.
- Risk management – never risk more than you can afford to lose.
- Prepare an exit strategy – plan your way out as early as possible, you don’t want to get caught in the crossfire.
- Diversify your portfolio – don’t put all your eggs in one basket, distribute your investment carefully into a few different assets.
- Be an early investor – whenever possible, try to be an early investor into something that has a lot of potentials. For instance, AI and tech companies are a great choice due to the immense advancement of the digital world.
- Long-term vs Short-term investments – when you’ve just started, don’t try short-term trading, because it takes time to learn it. Holding an asset for the long-term is the better choice for beginners. Meanwhile, use free trading simulators and keep studying.
- Follow industry experts – we’ve already provided you with some of the best sources for information where you can also follow industry experts for free.
- Read, read and then read some more – you can never go wrong with educating yourself, especially when doing so from credible sources such as books. There are tons of industry experts who publish their knowledge at affordable prices.
- Get a mentor – it’s not necessary to spend money on it as there are tons of great free materials on YouTube and forums. However, if you’re serious about mastering the craft of online trading you might want to take it a step further and find a trustworthy expert that’s affordable to you.
- Be patient – it’s not a sprint it’s a marathon. Remember the first time you’ve started playing table games? If we count out the ‘beginner’s luck’ factor, then you are of aware how much time and effort is needed to learn all the bits and pieces.
- Say NO to the naysayers – don’t listen to sceptical people who will try to force their opinion on you. As long as you’re smart and act carefully you can never lose. In the long term, you will only learn, sometimes by your mistakes, sometimes by your success.
This paragraph marks the end of our online trading guide for beginners. Maybe it’s a tad too long, but this was the optimum summary of everything we wanted to share with you. If you’ve made it thus far, congratulations, you’ve begun your path as an investor and trader. As long as you stay dedicated and consistent, we don’t see a reason why you won’t make some extra income from online trading. And remember – Warren Buffett didn’t become a billionaire overnight, and neither will you. This is a long-term game, so, don’t rush yourself, take your time and enjoy the ride.