Many today know, or at least have heard, that you can earn on the sale of shares. And also that this opportunity is available to almost everyone, since there is and is actively developing Internet trading. What is it and how will it help an ordinary person who is infinitely far from the financial sphere to earn? In a general sense, trading is a trade, and the trader is the person who engages in it. In the case we are considering, trading is understood to mean participation in tenders 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 who trade in the market. The first 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 motley army of self-taught traders, although some “advanced” amateurs are not much different from professionals.
Some traders trade in securities on the stock exchange, others - in the currency on the international over-the-counter market FOREX. Due to legal features, as well as the mechanism for organizing trades, the exchange for beginners is considered much safer than FOREX. Therefore, further we will consider exactly exchange trading. What is it and how is it arranged?
Exchange trading
An exchange is a company that organizes trading in certain instruments. It establishes the rules of trade and ensures that all participants comply with them. Stocks and bonds, as well as derivatives contracts - derivatives (futures and options) can be traded on the stock exchange. Those who take the first steps in trading are recommended to start with the simplest tools - 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 applications, a special program (terminal or trading system) will be provided to the client. 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 record the purchase and sale transaction. Despite the rather lengthy description, this entire process takes a matter of seconds.
How a trader differs from an investor
Depending on the term of holding the positions, stock trading is divided into short-term and long-term. The latter is called investing, and those who deal with it are called investors. These exchange traders usually operate in fairly large amounts. They conduct a deep market analysis, 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 usually called short-term traders. They have a single goal: to buy stocks cheaper and sell more expensive. This type of trade 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 begin to close their positions.
It is customary to distinguish intraday and positional trading. What it is? Intraday trading, or intraday trading, 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, because at this time various adverse events can occur. Position traders hold purchased stocks longer - from several days to several weeks, and sometimes months.
Systems approach
Trading stocks and other instruments involves following a number of rules. A good trader at any time knows what he needs to do now, and what steps he will take in case of development of events in any possible scenario. The key to good luck in trading is system trading. What it is? Each trader should have a set of their own trading rules or, as they say themselves, a "trading system." Here are some of the basic rules:
- Limitation of 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 the purchase of shares, the trader should recognize it and close the deal. Even if it seems to him that the price is about to “turn around”.
- Trend trading. Successful trading involves following a trend, not fighting it. If the price of shares rises, you do not need to sell them in the expectation that it is about to begin to fall.
- Understanding when not to trade. If a trader is tired, does not get enough sleep, falls ill, or is simply unable to understand what is happening on the market, he should stay away from the terminal. Otherwise, the risk of making the wrong decisions is high.
These are just some of the basic rules that will help a novice trader preserve 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 quickly made a fortune. In particular, this applies to trading on FOREX. Such statements must be treated with caution. Most often, they are advertising 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 the fact that the trader bears responsibility for his losses on his own.
It is believed that only 5% of newcomers succeed in the market. The rest lose their capital and leave the trade - permanently or temporarily. What causes their defeat? Most often this is a lack of understanding of the psychology of the market, unsystematic trading and neglect of the basic rules. Few novice traders realize that the decisive factor in the market is discipline. Experienced marketers say that success is almost entirely based on the ability to control your emotions and think with a “cold” head.