Many today know or at least have heard that you can earn money by buying and selling shares. And also that this opportunity is available to almost everyone, since online trading exists and is actively developing. What is it and how will it help to earn money for an ordinary person, infinitely far from the financial sector? In a general sense, trading is trading, and a trader is a person involved in it. In the case we are considering, trading is understood as participation in trading organized by professional platforms on which certain instruments are traded (traded) - stocks, bonds, futures contracts or currency.
Who are traders
Traders are both professionals and amateurs trading on the market. The former include employees of brokerage and investment companies, banks, dealing centers. These are people for whom trading is a job. The second group is a large and very diverse army of self-taught traders, although some "advanced" amateurs are little different from the professionals.
Some traderstrade securities on the stock exchange, others - currency on the international over-the-counter FOREX market. Due to legal features, as well as the mechanism for organizing trading, the exchange for beginners is considered much safer than FOREX. Therefore, further we will consider exactly exchange trading. What is it and how does it work?
Stock trading
An exchange is a company that organizes trading in certain instruments. She sets the rules of trading and makes sure that all participants follow them. Stocks and bonds, as well as futures contracts - derivatives (futures and options) can be traded on the stock exchange. For those who take their first steps in trading, it is recommended to start with the simplest instruments - stocks.
To trade stocks, a future trader will need a broker. This is a company that organizes the connection of a trader to exchange trading and opens a trading account for him on the exchange. In order to track quotes and submit orders, the client will be provided with a special program (terminal or trading system). Trading is carried out by submitting orders to the exchange through this trading terminal. If the application is of interest to other bidders, they will execute it, and the exchange will fix the purchase and sale transaction. Despite the rather long description, this whole process takes a matter of seconds.
What is the difference between a trader and an investor
Depending on the period of holding positions, stock trading is divided into short-term and long-term. The latter is called investment, and those whodeals with investors. These participants in exchange trading usually operate with fairly large amounts. They conduct a deep analysis of the market, select the most promising companies and invest for years. Investors expect not only to earn on the resale of shares, but also to receive income in the form of dividends.
Traders are commonly referred to as short-term traders. They pursue a single goal: to buy shares cheaper and sell more expensive. This type of trading is also called speculation. The trader does not care about the fundamental economic indicators of the company and the growth potential of its shares in the long term. If today these shares are growing, then traders buy them. When they stop growing, traders will start to close their positions.
It is customary to single out intraday and positional trading. What it is? Intraday trading, or intraday, involves opening and closing positions on the same day. The trader does not want to leave the purchased shares for the night period when the exchange is not working, since various adverse events can occur at this time. Position traders hold purchased stocks longer - from several days to several weeks, and sometimes months.
System approach
Trading stocks and other instruments involves following a number of rules. A good trader knows at any moment what he needs to do now, and what steps he will take if events develop according to any possible scenario. The key to success in trading is system trading. What it is? Every trader should havea set of their own trading rules or, as they say themselves, a “trading system”. Here are some of the ground rules:
- Limiting losses. It implies the need to clearly limit the amount of the maximum allowable loss in each transaction. For example, if a 5% loss is received as a result of buying shares, then the trader should recognize it and close the deal. Even if it seems to him that the price is about to “should” reverse.
- Trading with the trend. Successful trading means following the trend, not fighting it. If the stock price is rising, don't sell them in the expectation that it is about to start falling.
- Knowing when not to trade. If a trader is tired, has not had enough sleep, is ill, or is simply unable to understand what is happening on the market, he should stay away from the terminal. Otherwise, there is a high risk of making wrong decisions.
These are just some of the basic rules that will help a novice trader save capital at first. With experience, their list will expand, and trading will turn into a sequence of thoughtful actions.
Trading: reviews - believe it or not?
On the Internet, you can find many "success stories" of novice traders who made a fortune very quickly. In particular, this applies to FOREX trading. Such statements should be treated with caution. Most often they are advertisements for dealing centers that are trying to attract new customers. In any case, before you start trading in any market (stock or currency), you need to clearly understand the risk and that the responsibility forthe trader bears his own losses.
It is believed that only 5% of newcomers succeed in the market. The rest lose their capital and leave trading - permanently or temporarily. What causes their defeat? Most often, this is a misunderstanding of the psychology of the market, unsystematic trading and neglect of the basic rules. Few beginner traders understand that the decisive factor in the market is discipline. Experienced traders say that success is almost entirely based on the ability to control one's emotions and think with a "cold" head.
