Today, financial markets are at your fingertips. Around the world, millions of traders work remotely, buying and selling assets online. Their profits depend on their skills and market forces like supply and demand. Anyone can try to master this art. All you need is suitable software, a brokerage account, and, of course, knowledge. Discover the fundamentals of Internet-based trading.
Online trading is unimaginable without sophisticated platforms and apps. Today, you can work from any device, at any time of day and night. For example, the global currency market is almost always awake. It is open 24 hours a day every weekday. Traders may even use robots that make decisions while they sleep. Generally, tradable instruments have similar logic.
Buying and Selling Online
You may be familiar with the stock exchange cliché ‘buy low and sell high.’ It is applicable to other markets too, i.e., derivatives, precious metals, etc. Consider what happens in the most colossal of them – the global currency exchange.
Currencies are always valued against one another, forming pairs. Exchange rates are always changing, as they are swayed by multiple factors, both economic and political. For instance, think of problems faced by oil exporters like Nigeria. When the price for the benchmark crude plunges, their national currencies depreciate, and vice versa.
Such factors are known as fundamentals, and they form the basis of Forex analysis. Other examples include GDP, interest rates set by central banks, trade deficits, wars, etc. Traders keep track of these events to see where their instruments are headed. They may also use technical indicators like volume and price to detect patterns.
Every trade is an attempt to buy low and sell high. This means that currencies are sold when they are expected to fall, and bought when a rise is anticipated. An important advantage is that both uptrends and downtrends can be profitable. There are plenty of resources that teach Forex trading for beginners including these four main steps:
- Open a demo account;
- Learn and practice as much as possible;
- Switch to live trading;
- Make Profits.
Every currency pair follows the formula ‘base currency/quote currency’ (aka ‘counter currency’). If the price for USD/ZAR is 16.57030, you know that one American dollar costs roughly 16.6 South Africa rand. Two prices are streamed simultaneously. These are Bid (for all sellers) and Ask (for all buyers). The former is always slightly lower, which corresponds to the general logic of sales.
The ForexTime broker recommends you choose pairs whose dynamics are most familiar. For example, a resident of the European Union may prefer EUR/USD. Here, knowledge of the European economy helps to predict the dynamics. At the same time, a resident of South Africa may be advised to opt for USD/ZAR, as the quote currency represents their national monetary system.
Basically, traders of currencies, stocks, and other instruments bet on the direction of the market. They open positions in accordance with their forecasts. You go long when you intend to buy, and go short to sell. This is the underlying logic of Forex trading in general. What changes are the factors you need to monitor. For example, someone trading shares should keep a close eye on the performance of the issuing company.
Stop Loss and Take Profit are invaluable features of popular trading systems. These are parameters determined for every trade (at least, they should be). The trading system is programmed to execute a position automatically when the desired price level is reached. This way, traders can collect profit and establish an acceptable level of risk. They know exactly how much they can lose if the market turns against them.
As a trader, you should not be focused on a single instrument. Many pros begin with Forex and add more instruments as they gain more experience. The more assets in your collection – the lower your overall risk. If any instrument is unprofitable, you may see returns elsewhere.
Diversification is a basic recommendation. Do not rely on one instrument, as it exposes you to high risk. Your ultimate goal should be the creation of a diverse portfolio where risks are balanced across a set of different markets. Of course, this also requires expertise.
If you have never traded online, begin by opening a demo account with a regulated brokerage. In South Africa, the services are offered by local and international brands. Make sure the provider is officially registered and authorized by a credible entity, such as the FCSA, the FCA, the CySEC, etc.
Reliable brokers provide clients with education, training opportunities, and support. They also process all financial flows to and from your account. It is crucial to select the right provider in order to trade safely.