A beginner’s guide to trading

What is trading?

Trading is the act of buying and selling assets in the financial markets. Assets that can be exchanged in this way are known as ‘securities’. Examples include:

  • Currencies (Forex)
  • Indices
  • Commodities
  • Stocks
  • Shares
  • Bonds

The purpose of trading is to try to play the markets to make a profit. This involves identifying assets with growth potential, investing, and then reselling the assets for a higher price once they have increased in value. The price difference between your initial purchase and the resale amount is how you make money trading. 

Investing is similar but not identical. Investors choose assets with long-term potential that should be resistant to periodic market fluctuations. Traders seek to capitalise on these rapid fluctuations to make money in a short space of time. 

Traders often rely on using an online trading platform like Tradu to monitor the markets, surf shifting trends and make instant decisions about when to buy and sell their assets.

A beginner’s guide to trading

Risks and rewards

Boost your savings

Trading can be a great way to boost your savings. Put your money into the right asset and sell at a suitable time and you’ll end up with a profit that can support your spending or go towards the future.

Stay ahead of inflation

Especially when inflation is high and interest rates are low, trading can be a means to stay ahead of inflation. This is because your wealth has the potential to increase in the financial marketplace whereas money stored in savings will be losing value in real terms.

Possible loss

Just as the right asset and resale time can lead to a profit, the wrong asset and resale time can lead to a loss. The Foreign Exchange Market is actively traded because it’s fast-paced and changeable, but this unpredictable volatility leaves you vulnerable to losses as well as providing opportunities for gains.

Less security

Your money may be slow- or no-growing in a bank account, but you can be sure it’s safe and stable. Financial markets can be affected by a host of factors, many of which are unpredictable such as wars and environmental events. Investing funds into trading means less security and certainty in your financial health. 

Getting started

Begin by researching trading thoroughly. Learn more about the different assets and markets, investigate strategies and potential pitfalls and track trends to identify patterns in the fluctuations. 

Next, make a budget. Set aside a comfortable cushion so that you’re protected should your trading endeavours go awry, and limit how much you trade day-to-day. This is especially important while you’re learning the tricks of the trade.

Finally, check carefully for potential scams and take steps to secure your personal details when trading online. Always look for SSL encryption on websites, indicated by the ‘s’ at the end of ‘http’.