3. Types of Online Trading Depending on Different Criteria
3.1. Who Makes Orders? Types of Speculations!
3.2. Classification of Online Trading By the Timeframe of Trading Strategies
3.3. Where Are Noisy Exchanges Now?
The theme of exchange business intrigues most people. Some have the association with enormous wealth, others – conversely – with fraud and financial losses. But, what is online trading? What is its origin? Can anybody really make money with it? Let’s figure everything out!
Trading in classic variant is speculations with securities. The term “speculation” stands for purchasing by the one price and selling the asset by the other price. The difference between prices make up the profit or loss. It turns that a trader is the one who engages trading operations for getting the difference in asset price. It’s usually called rate difference.
The term online trading appeared in late 1990s, when the Internet got the universal distribution. The essence of activity remained the same: the same contracts of purchase and sale at stock, commodity or currency exchanges. The one thing that changed is the way of processing operations: now, deals are made through the world Network, modern gadgets and special software.
In order to work at the exchange, one needs Internet connection to download online trading systems and a cell phone. Imagine the freedom of this! But every coin has two sides. Let’s talk in details about advantages and drawbacks of this type of trading.
First, let’s specify advantages of online trading:
Drawbacks of online trading:
To conclude, I can say the following: trading at the exchange is not fake or a fraud. Those who think another way, are either far from trading, or failed due to unreasonable approach to this way of making money.
In order to realize the essence of trading better, let’s refer to history.
Origins of the exchange trading come from Medieval. First joint-stock companies and, correspondingly, exchanges, appeared in the 14th century in Italy.
Before the emergence of modern communications means (cell phone, telegraph, Internet) traders had to send messages to brokers themselves or send letters with couriers. Messages contained orders of purchasing or selling certain securities. That was like that until the 19th century, when messages started being transmitted via telegraph. In the 20th century, telephones appeared, and orders were transmitted via them.
Today, traders don’t communicate with brokers directly. I mean, with brokers-humans. Nowadays, services of brokers are automatized. Trading orders are transmitted, processed and completed by programs through the network (online trading systems). First, a trader forms an order on their device, it comes to the computer of the broker, then, it goes further after moderation by the software, and goes to the exchange. There, it becomes pending. A message about a completed order comes this way as well. But the need to thoroughly choose the broker remains. Because there are lots of unfair mediators! You may read about nuances while choosing the correct broker in the article “TOP-5 Facts You Didn’t Know about the Binary Options Broker”.
Because of the Internet, one can create and delete orders as often as they need and wish. And, daily trading became convenient and approachable. With that, a trader reacts on price fluctuation on time. No more need in spending time for communication with the broker and transmitting messages. Decided to sell? The order will come to the exchange within several seconds.
In order to realize the place of online trading (tutorial of which has already been started) in the exchange business, let’s look into the classification of speculative trading.
Depending on the subject making orders, types of trading are:
Trading is corporate if operations over purchase and sale of currency and other assets are processed by some persons representing the company. It concerns major players at financial markets (Central Banks, holdings, commercial banks, etc.)
Trading is professional in case when orders are made by persons which have special licenses or permissions. Such traders commonly trade at the stock market.
Private trading stands for operations with securities, which are made by individuals in their own behalf by means of mediators (brokers, dealers). For example, if you decide to try yourself at the exchange, it will be actually private trading.
Depending on terms of orders, trading is divided into:
Daily trading takes place when orders are made during the day, i.e. all the positions (for purchase and sale) are closed within the one day, and they are not moved to the next day. For daily trading, special trading strategies are developed. One of the most illustrative is scalping. The essence of how to make money trading online during the day lies in the fact that the order is closed at once when the profit is reached (almost in several pips). But those who just start the career of a trader, should be very careful over scalping. To engage profitable daily trading, you need a tested strategy, knowledge and great reaction.
Positional trading is trading when the order is opened for short terms: from a day to several days. This type mostly suits beginner traders, as they have enough time to orientate and analyze the situation. A strategy for positional trading that gives solid stable income can be studied in the article “Secret Ally”.
Medium-term trading is characterized by the fact that only a few orders are made within a year. But, nevertheless, this type of trading is also very popular among traders, because reasonable incomes come from not that great efforts. This type of trading belongs most to classical Forex, where trader’s income depends on the number of pips that price passed.
The feature of investment trading is that the term of the order can reach several years. Investing money in certain securities, a trader counts on the stable growth of price for share of the certain company and on dividends. For that investment, shares of major companies goes well, which are distinguished by financial stability and prosperity. Investments in share may be the alternative to bank deposits.
The next criterion is the place of trading (place where the terminal is situated). Depending on that, there are:
The first type is the classic trading, but it’s being actively replaced by online trading. Making orders in the operational hall of the exchange becomes the history. For the last 15 years, online trading has almost fully replaced the classic variant.
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Most are interested in the question “how to become an online trader? What to start with?”
Stage 1. Find a reliable mediator. A mediator is a broker; they are the operator conveying orders of traders to the exchange. Take the following criteria into consideration:
The last point is very important, as a trader may realize whether the company is reliable or not, having talked directly with employees of the broker. Also, brokers often hold different trainings and seminars for customers. It’s good if the company is located not too far from you – this way, you will be able to attend such events.
Why do you need a broker? The matter is that individuals engaging private trading, cannot get direct access to the exchange. And the broker is needed for this very access, as they have appropriate licenses and permissions.
Stage 2. Open a trading account and a bank account. It's needed to buy and sell securities and other assets. By the way, a bank account is not always necessary - trading accounts can often be topped up not from the bank account but directly, through terminals, e-wallets or bank cards. It works this way with binary options. A trading account will be opened by the broker. All the client has to do is to provide documents.
Stage 3. Install software offered by the broker. Get on with working process of the trading system. For better adaptation at the market, I recommend you to read the user guide of MetaTrader4.
Stage 4. Master basics of trading. I doesn't mean that's enough. You need continually learn exchange business and develop yourself. But, to start and try yourself at little amounts, you may just choose online trading (tutorial for which is available free of charge). Practicing traders are better in mastering nuances of technical analysis.
Stage 5. Choose the trading instrument:
This is the list of the most popular trading instruments; nevertheless, it’s not full. A novice trader would better choose an instrument from the list above.
Shares are the most common instrument. This one belongs to securities. Purchasing a share, you become an owner of the part of the company. Though, only of that part, that is constituted by the part of purchased shares of the whole their number.
Bonds are securities which confirm the fact that you invested some amount in behalf of a company or a state for the certain term, and you will get rewarded for this in the form of interest on the invested amount.
Futures are another type of securities. Purchasing a futures, you get the obligation to buy a certain commodity, by the fixed price at the arranged time in future. But, it is general theory. In online trading, futures are bought and sold like shares, and the profits are formed by the rate difference.
Options. Whether options are securities are not – this is the doubtful issue. In American exchange theory, they belong to the Federal Reserve. In other countries (for example, European) – they don’t. The fact is options give the right to purchase, but not the obligation to buy in future by the fixed price. This instrument is the derivative from futures.
For most novices, online trading starts with binary options. All the matter is it’s easy to work with them. One just has to forecast whether the price falls or rises. If the forecast is correct, then profits usually vary between 65% and 90%. Another positive point is that the volume of profit and loss is known before the order is closed, which minimizes risks. You don’t need fundamental knowledge to try yourself in trading binary options. This instrument suits either novice traders or professionals. And in the article “Who Gains from the Statement “Binary Options Scam” – Professional Opinion!” you can read why this instrument is often considered unreliable.
Currency pairs is the special object of trading. A currency pair is the expression of one currency over another, i.e. currency rate, actually. They are being trade at Forex currency exchange. Its name is the derivative from FOReign EXchange.
Stage 6. Start trading. You'd better start with small amounts. And I strongly recommend you not to use demo-account for enhancing knowledge and trying yourself. It doesn’t give the feeling of diving into the market and dulls the sense of danger.
Now, let’s look into the process of trading at the exchange carefully. I must mention that the principle of trading is the same for all types of exchanges. The main thing is to buy at the lower price and to sell at higher. This very principle insures positive rate difference, which is the goal of any trader.
A simple example. You bought 10 shares by $3 each. Now, the minimal price of selling must be $30 + % of broker’s fee. If you sell the share by this price, you will lose nothing. But the goal is to be in profit, that’s why, you’d better sell shares when the price rises to $30 + broker’s fee + profit. Let broker’s fee is 0.5% of the operation. You succeeded in selling shares at $4 per share. Your profits will be 40-30-0.005*30-0.005*40 = $9.65
If the principle is that simple, why don’t all traders make enormous money? The matter is the price not always goes in the needed direction. Even the most famous exchange traders cannot boast of 100% profitable orders statistics. The statistics of successful speculators usually makes up 70-90% of profitable operations of the total number of orders.
To make decisions over entering or leaving the market, traders use three types of analysis:
Technical analysis is the bedrock of online trading. The analysis is hold with drawing figures at the chart, and the great arsenal of indicators, oscillators and indices. The full information about the theme of technical analysis cannot be given in the one article. This is the separate topic, which takes the volume of several articles. And many books are written about this theme.
Novices must have the question: why can’t all the instruments of analysis make a 100% correct forecast over price movement? The matter is trend lines, indicators, etc. are determined according to the data which is already outdated. Therefore, readings of indicators are late.
That’s why, professionals use information of fundamental analysis in their work. For example, a trader decided to buy shares of General Motors. They need to analyze the microenvironment, i.e. what’s going on in the company (financial info, change of management, etc.). Everything that may affect financial prosperity of the company from the inside! Further, they need to assess the macroenvironment: segment of the market, economical and political situation. It’s not that easy! But, you need to monitor the situation continually.
Intuitive method of analysis is subjective, because it’s based on the personal experience. This method of analysis is available only for professionals, which have been engaging trading at the exchange for years.
The system of tricks, methods, principles and indicators is called trading strategy. There are many of them. Every trader chooses the one, which is more comprehensive for them. And which gives a good result when tested.
Can online trading become a job? The answer is simple: yes, surely it can! All depends on the approach. The main thing is to learn and get skills of exchange trading. It’s long and hard work, but the result may exceed all expectations. Patience is the skill!
If a trader wants to make operations with securities, currency pairs and other assets the main source of income, then they need to choose assets with the highest volatility (the extent of price change). Trading and monitoring trends must be carried out every day. So, you must have a work-approach to the online trading. And, the growth of profits will be the career progression.
Each trader who wants to become a professional must develop or select their own system and 1-2 trading strategies. Assess your resources and skills soberly, realize how to make money trading online. The risk must be thoroughly considered; otherwise it’s too easy to lose all your money. To avoid such fate, I recommend you carefully study rules of money-management.
Gurus of Online Trading recommend you to:
It’s difficult to assess incomes of professional traders. It’s too subjective and depends on many factors: skills, knowledge, experience, trading and analysis instruments, exchange, brokers, luck, trading strategies and systems of trading, and the attitude to risks. The average value varies from 30% to 90% per annum. As you can see, even this value is ambivalent. Orders of the one year can give 200% profits, and only 20% for another.
In the final part of the article, we will talk of online trading systems, to be more accurate, of program sets needed for the access to orders at the exchange, acquiring and processing exchange information, technical analysis. Online trading systems are provided for private traders by brokers in terms of service contracts. The list below will tell novices about the most popular systems:
Online trading is the relatively new and attractive opportunity to gain without leaving home. But don't perceive it like a hobby! It must be either transformed into your job, style of thinking and passion at the same time or the way of saving and multiplying the capital (investing in reliable, stable and low-risk assets). It's up to you!
for binary options
|Moving Averages:||Buy (0) Sell (12)|
|Indicators:||Buy (1) Sell (8)|