At first trading can seem intimidating- everyone uses what seems to be another language with very fancy terms, and it’s difficult to get a hold of the basic information you need to start your trading career. Yet we believe that it can easily be done successfully if you understand what you’re doing- so we are here to help you with three basic concepts, so that you can get a head start in your trading career.
1. What is trading?
Put simply, trading is a form of commerce, and it usually means exchanging one item for another. In usual terms that means goods or services, and when it comes to online trading there is another added item that can be traded: shares. What a trader does is to buy and sell small parts of a company- that is what shares are. You buy shares at a price, and you of course try to sell them at a higher price if you no longer want to keep them.
2. What is the difference between investing and trading?
The difference is quite subtle, and the line between investing and trading is fine because the two terms often overlap. But put simply, investing has the goal of gradually building wealth over a longer period of time through buying and holding a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments. Trading is very similar, but the main difference is that everything happens faster. Buying and selling stock is more frequent, and while investors can aim for a 15% return in a year, for instance, traders will go for a 15% monthly return instead. Another detail is that traders often sell their shares at a price that is lower than what they bought, when they know that the price will continue to decrease- that way they minimize the (sometimes inevitable) loss. Investors on the other hand tend to keep on to the shares, in hopes that their price will rise again.
3. How do prices fluctuate in online trading?
The prices change very often based on the principle of demand and supply. To give you an easy analogy, imagine this: a fruit vendor has 15 mangoes for sale. There are only 3 customers interested in mangoes in his store, so he sets a fair price to make sure that he can sell them before they are not longer edible. Not imagine that there are 20 customers in his shop, all looking for the same thing: a mango fruit! In order to decide which of the 20 customers will get the fruit, he will increase the price- those willing to pay will get what they want, and the others will not. That is the principle of demand and supply.
In trading this is similar. If a company has just posted some amazing results and is paying good dividends (payments made to the shareholders from the profit), then the share value rises- so the shares are sold at a higher price, because now there is a big demand for them.
All in all, regardless of how often you wish to trade, or how serious you want to get, there is only one way to be successful. The most important thing is to do your homework. We offer many tools that can help you figure out what is or isn’t worth buying, and with a bit of time and ambition you can get organized and on your way to making your first profitable deals.