Have you heard the words trading online before? Most likely not, and if you have, you may not understand much about it. Well, I will explain it to you through an example.
You are surely familiar with the movie The Wolf of Wall Street . Well, the business that the protagonist, actor Leonardo DiCaprio, did is what is known as trading, that is, the buying and selling of an asset on the stock market, but transferred to the cyber age.
But how can you become a successful investor who spends money without knowing anything about the stock market? . Well, let’s go step by step, the first thing is to know the basic elements of online trading so that later you learn to live from this activity that is revolutionizing the world of finance.
What is online trading?
The word trading is translated into Spanish as the action of trading or negotiating . It is such an ancient practice that the Romans themselves used it by buying and selling merchandise or goods.
In the 1970s, this trading became popular with the famous Stock Exchange, where its brokers carried out their transactions by means of telephone calls and executed the orders of their clients to purchase or sell public or private shares.
Nowadays, with the evolution of technology, this trading business is moving to the web, allowing trade to be carried out from anywhere in the world through a computer with the click of a button.
Therefore, we could say that online trading refers to the purchase and sale of financial instruments or goods listed in a previously studied market, using a digital platform provided by a broker, in order to obtain an economic benefit .
Ways to trade online
In general, trading is understood as the sale that is carried out in the very short term , that is, the operation remains open for only seconds, minutes or hours; since those that are executed in the long term, with operations that can last months or years, are considered more like an investment .
However, there are many ways to do online trading operations based on the length of time that a trading activity will be applied, and on the mental perspectives that each trader has when making the transaction.
- Scalping: is that commercial practice that is carried out in a matter of minutes. The trader who performs this style of trading must have experience with the daily movements of the market in order to anticipate the changes that can generate profits. Likewise, he must be mentally and emotionally prepared to take risks quickly and not lose money in the process.
- Day trading: also known as intraday trading . It is similar to Scalping because it closes operations in minutes, obtaining short-term profits, however, they can remain open throughout the day. The trader must also have the experience to buy and sell stocks quickly and intelligently, without being carried away by the emotions of the moment.
- Swing Trading: commercial transactions remain open for days or months, obtaining benefits in the medium term. Here the traders must be patient, since their operations are closed after several weeks, waiting for them to turn against them, losing the investment.
- Position Trading: it is considered the classic investment because its operations remain open for years, obtaining long-term profits. Because they are commercial activities that last for several months, the trader has more time to carry out other operations. However, the chances of suffering losses are greater, due to the fact that it is exposed for a longer time to the constant fluctuations of the market.
How to be a trader?
The trader is the person who does the trading. Therefore, he is the one who is in charge of trading the financial instruments in a respective market . They act as intermediaries in the sale of assets for a private company, or work independently as investors.
Regardless of who he works for or the type of trading he does, the trader has at his disposal the same information as his colleagues, exercising under the same principles to obtain money.
Exercising this profession successfully is not easy, for this reason only stockbrokers practiced it. They were trained exclusively in this area to be able to practice professionally and, although today anyone can trade online, this career requires mastery of certain issues that will determine the loss or profit in an operation.
Know the stock market
It is the first thing you should do in trading for beginners . Knowing how the stock market moves and how to analyze the rise and fall of prices will help you make an investment decision.
There are many markets in which to trade, the fluidity of which will depend on the supply and demand of the day. The most popular are:
- Foreign exchange market : also known as Forex . Here you must compare the price of two currencies and analyze their changes in the last few days to predict if the price of one of them will rise to buy it and thus make a profit when you close your sale.
- Stock market : it is the best known by investors. Companies make their shares available to raise capital, which you buy at a low price and then sell them when they are listed for a higher value.
- Asset Market – Trading of various assets such as raw material, foreign exchange, assets, among others, takes place here. You must analyze if the price of an asset will rise to invest in it, set a deadline to close the operation and wait whether or not you made a profit.
Analyze support tools
Currently there are various tools that allow you to study the markets and then do a business. If you want to be a successful trader, you must be able to analyze these tools so that you can make a wise decision.
There are two types of analysis you should handle:
1. Technical Analysis : it is the study of prices by means of price charts. It is essential to know how prices behave over time in order to obtain a prediction of their probable future.
Charts are the first tool that every trader uses when starting out in this world, looking at how the bids and asks behave in the last few days. If you do not know how to interpret or analyze the different patterns, indicators and statistical calculations, the conclusions will be wrong, leading to failure.
2. Fundamental Analysis : is the study of news about the economy, companies or world politics to predict the behavior of the prices of a certain asset and determine if it is a good time to do business.
To practice this type of analysis, it is important to have an economic calendar available that reflects the events and news that may influence the demand or supply of the market in which you are investing.
Manage investment capital
Knowing how to manage your capital will help you reduce the risk of a total loss on a trade . That is why Monetary Management or Money Management tries to execute strategies based on accepting the possibility of losing in a transaction, indicating the maximum amount of money that you are willing to lose without wasting all the capital.
If you set the limit of automatic closing when the operation goes in loss (Stop Loss) you establish an insurance against large losses, assuming that the little you can lose will not affect your mental and emotional state for your future decisions as a trader.
Another element that will control your capital is determining how much asset you want to buy. The amount of money to invest will increase or decrease depending on market fluctuations.
Control emotional decisions
Also known as Psycho-trading . Believe it or not, emotions play a fundamental role in the success or failure of trading by influencing every step you take as a trader. That is why you must have an emotional and mental balance when making a business decision.
To begin with, the style of trading that you will exercise goes hand in hand with your personality , so it is important to recognize what are the attributes and weaknesses that will lead you to success as a trader, because if not, you will be under a constant conflict between doubts and the insecurities that will arise along the way.
If you are an impatient, impulsive person who likes to be in constant activity, you should practice Day Trading or Scalping. On the other hand, if you are the opposite, you will succeed with Swing Trading or Position Trading.
On the other hand, your mental ability to quickly overcome defeats and learn from mistakes will guide you to build a stable career . Money management comes into play here , since if you know what you will lose, there will be no effect on you, which will help you develop tolerance to avoid fears of investing again.
But if you’re on a winning streak, be careful not to get too confident. This leads you to invest much more of your capital taking risks that were not previously analyzed, losing a large sum of money; fact that many times can lead to depress a trader, thus leading him to the end of his career.
How does online trading work?
Now that you know what online trading is and the qualities that a trader should have, it is time to practice it. In general, trading is buying an asset at a low price and selling it at a high price to make a profit , but as you have seen, trading involves a number of elements that go beyond just buying and selling.
Online trading works through a server or digital platform called Broker , through which you will make all commercial operations . She receives all the relevant day-to-day information about a specific market, and then provides it to you in detail through tools that allow you to analyze the changes that occur in said market.
As an online platform, its information is constantly updated, so it is important that the trader uses devices with an internet connection so that he can be updated with the fluctuations of the stock market.
Obtaining an account in a broker is simple, you only have to add your data to give yourself credibility as a trader on the server and, once registered, you can start trading.
However, if you are new to this world, the ideal is that you familiarize yourself with all the functions so that you learn to use them correctly and analyze the information that it provides you. Its key tool is price behavior charts, key elements for technical trading analysis.
One of the features offered by most brokers in trading for beginners , usually presented as a demo account. This is a great opportunity to practice asset trading without losing any money, as it is a simulator that allows you to trade under situations similar to a real account, but with virtual capital.
With this simulator you can practice all trading styles and test all trading strategies without any risk of losing, so you can find your own voice as a trader.
Another element to know how to use trading once you are already registered with a broker, is marketing . The sale of financial instruments (assets, currencies, raw materials, etc.) is the full essence of trading.
You can do these businesses through two types of operations: with the traditional one, buy cheap and then sell expensive; or with a CFDs or Contract for Differences , where you sell without owning the asset and then buy it back at a lower price to close with a profit.
Regardless of the type of market you operate in, the trade you want to practice and the trader you want to be, you can apply either of these two operations. Online trading works under the same principles.
Can you live from trading?
You can definitely make a living from trading, but it won’t be overnight.
Trading is a process of training, practice, discipline and perseverance. You need to spend some time immersed in this world to explore the broker of your choice, learn to interpret the support tools, experience the different trading strategies and recognize the trading style that best suits your personality.
At the beginning it will not be easy to make money with trading , analyzing the constant fluctuations of the market lead to confusion and abandonment of it. In addition, uncertainty fills you with fear and insecurities that will generate a certain loss of capital.
That is why money management and psycho-trading are important in the search for success in trading since they allow you to be constant in recognizing the loss and accepting it, and then learn from each operation and gain experience as a trader.
Beware of online trading scams!
In addition, as in any business, you must be careful of scams and more if you are a beginner. Generally, online trading scammers are based on offering methods to earn a lot of money quickly, easily and safely , showing the account that reflects some profit based on high-risk speculative bets, but hiding the other accounts with large losses that follow. the same bets.
Cyber scammers also use accurate forecasts to trick people into thinking that their strategy is the best, when they have based their entire profit on luck. Similarly, scammers advertise in the media to claim that they are successful traders without the need to show any evidence.
Remember that this whole process can take you even months before you decide to live on trading income alone. However, the time will depend on your discipline in the practice of trading and the desire to continue training in this profession .
That is why those who offer you to make profits of more than 50%, 80% and 100% quickly, is a warning sign of a safe scam.
As you have seen in this article, to be a successful trader, you need many more qualities than knowing how to buy and sell, you have to be clear about the important concepts and, above all, be clear about what online trading is.
Making a living from online trading is possible, but it requires training, practice, discipline and perseverance. Do not be fooled by those who tell you that it is an easy and fast way to earn money. That does not exist!