In the 2020s, trading has become a very important part of our lives. It’s common practice now not only to save money for the future but also to use it here and now to get additional income. We have no doubts that at least several people you know trade in the financial market.
Do you want to be among those who buy and sell various currencies, stocks, and metals? Then this short course is for you. You will discover the instruments the financial market has to offer and will be able to make your first steps in trading.
By the end of these lessons, you will:
See the difference between EURUSD and USDJPY;
Know how trading profit is calculated;
Open your first trades.
In this course, you will meet trader Festus – a beginner who is also learning how to trade. He will ask his questions, and we will provide answers.
Are you ready to become a real trader? Let’s start!
What is online trading?
For a start, trading is buying and selling of financial instruments.
We can break these instruments into several categories:
Forex – currencies, such as the US dollar, the euro, the British pound, and many more;
Stocks – small units of ownership in a company – Apple, Microsoft, Tesla, etc.;
Indices – the value of a group of companies represented as a single number, for example, US500 (S&P500), US100 (NASDAQ), Nikkei 225, etc.;
Commodities – physical assets and raw materials, for example, gold and oil;
Cryptocurrencies – a digital or virtual currency that is secured by cryptography, such as Bitcoin and Ethereum.
Trading is actually a very wide sphere. It happens all the time: people and companies constantly exchange different financial assets. You have already taken part in this process. When one travels from Europe to Japan, you exchange euros for yens; you actually act in the Forex market. When American firms get pounds for selling things in the UK and then exchange these pounds for dollars, they trade in the Forex market as well.
Online trading is about buying and selling financial instruments with a specific goal of earning money. Traders look for assets that are cheap to buy them and then sell at a higher price. In addition, they can benefit from opening a sell trade if the price of an instrument that they have chosen, for example, the EURUSD currency pair, declines.
"I get exchanging currencies online, but how about stocks? What about oil? And gold?"
When we talk about trading stocks or metals, we don’t mean that traders need to get involved with these assets directly. It’s possible to make trades based on price changes without having a gold bar delivered to you or taken from you.
In the picture below, you may see the price chart of gold (XAUUSD) and the levels at which a trader could have opened and closed their trade.
"Should I have special education to trade? Like economic, mathematical?"
Many people still think that only people who got financial education and are skilled in mathematics can trade in financial markets. It’s easy to guess where this myth is coming from: if you click on some financial article, you will probably meet words and expressions like ‘accommodative monetary policy,’ ‘moving averages,’ and so on. These terms can make you believe that you are not fit for trading. Don’t think like that!
Underneath the terminology, there’s one simple principle that defines trading: you need to make a prediction about whether the price will go up or down.
If you manage to make an accurate forecast, you will be able to earn money. If your forecast is wrong, you will suffer losses. There are various methods you may use for a forecast, and you will need to choose the one(s) that suit(s) you best.
Moreover, with the proper education, you will feel easy about the concepts and definitions that seemed confusing at the beginning. This understanding, in turn, will make you a stronger trader. When you gain knowledge, you will be able to make good forecasts more often and, hence, have winning trades. That’s what all traders are aiming at. That’s what you learn how to do in this course!
Why trade online?
Every person cares about their personal finance. The natural goals are to save money from inflation and increase capital. Trading offers a way to achieve these goals. Many people choose trading not only as a money-bringing hobby but also as a profession. In both cases, trading is often seen as a way to financial freedom.
Compared with other ways to raise money, trading has the following advantages:
You will need your mobile device, a laptop, or a desktop with an Internet connection, nothing more;
You can learn by practicing with virtual funds before you trade with your actual money;
You can borrow funds from your broker, i.e., use leverage, to increase your potential profit;
You can do trading when you have time;
You can trade on the news and keep increasing your knowledge about finance.
Many things happen in the world. Currencies rise and fall versus each other all the time. Companies release new products and conquer new markets, so their stock prices move up. Gold and oil constantly change in value. You can earn on all these changes by trading. Buy or sell, see the price change, and close your trade. Active people make use of their money!
How to trade?
The logic of trading is quite simple: if you expect the price of gold to increase in a week, you buy gold. If your forecast was correct, in a week you close your trade and cheer at your profit. How exactly does it happen in real life?
You need to open a trading program MetaTrader, click on a ‘new order,’ and then choose ‘buy.’ When you open a trade, you usually have some target price in mind at which you will take your profit. When the price reaches this point, you end your trade, i.e., close your order.
In one of the next lessons, we’ll see an example of how to open and close trades on each platform.
Traders who expect the prices to rise are called ‘bulls,’ while those who expect a decline are referred to as ‘bears.’ A buy trade is also known as a ‘long position’, while a sell trade is also called a ‘short’ position.
Things you need to start trading
It’s not a long list! One thing you already have is access to the Internet. Another necessary thing is a trading platform(s). Getting it/them is also quite simple: you can download the software using the link on the website or in stores (App Store or Google Play).
MetaTrader
MetaTrader is the most popular platform for trading. If you want to use a dozen indicators and tools to analyze charts and get the help of expert advisors (EA), this should be your choice.
MetaTrader 4 will suit beginners who want to focus on the Forex market;
MetaTrader 5 is just right for in-depth analysis and trading of a wider range of assets, such as stocks.
Lesson summary
Online trading is buying and selling of financial instruments using special software;
You can trade various types of financial instruments: currencies, stocks, indices, and commodities;
Most of the time, traders don’t need the actual assets. They only aim to profit from the change in their prices.
Coming up
In the next lesson, you will get more information about financial instruments. Keep going!