Online trading

how beginners can get started

Online trading, from stocks to more complex financial instruments, has grown exponentially in popularity over the past few years. Driven by lockdown boredom and low spending, historically low savings rates and the effect of social media influencers promoting the activity, popularity has been such that even the House of Commons Library saw fit to comment on the rise.

The problem is that trading can be complex, with a truly unforgiving learning curve for beginners. However, with the right advice and knowledge of the types of trading available, it can become much easier to understand. To help clear up some difficulties and make it easier to navigate the minefield, here is all the key information newbies need to know.

What forms of trading are available?

There is a wide range of trading types available. Here are some of the most common and what they entail:

  • Forex – Also known as currency trading, this sees traders buying currencies and selling them, or betting on them rising or falling against each other. This can mean buying euros for pounds and selling them for pounds when the exchange rate changes and they are worth more. Understanding and predicting the impact of economic changes is crucial here.
  • Spread betting – This trading activity involves betting on the price movements of an asset, such as stocks, commodities (gold, aluminum, etc.) or forex. If you bet the price will go up (or down) and it does, you get paid by the broker offering the service. If not, you are losing money.
  • Stocks – The traditional form of trading involves buying individual stocks of companies (a fraction of the ownership of the company) and then selling them back when the price rises. Stock owners can also receive a dividend (a small amount of money) from the company if it performs well.
  • Contracts for difference – Also known as CFD trading, this allows traders to speculate on whether an asset will rise (a long position) or fall (a short position) over a specific period of time. With CFDs, you open a position (short or long) with a small amount of capital. When the position ends, if you were right, you are paid the profit made by the position. If you messed up, you have to repay more than your initial opening capital, according to the closing position. This is why you should always have funds to cover potential losses.

Understand what you are looking at

Although we have reviewed the main types of trading above, it is essential that you read thoroughly the types of trading you want to get involved in. If you have the knowledge, you can trade with confidence and make more informed decisions. If you don’t, you risk losing more money than you put in.

To get the understanding you need, start watching trading videos on YouTube, read lots of articles like this, browse forums, and talk to friends who have experience.

Three crucial tips for newbie traders

  1. have a plan

Once you know what you want to trade and understand how to do it, spend some time strategizing. Check out more guides, consider the timing of your trades, have long-term goals to achieve, and protect yourself against the prospect of some trades failing.

  1. Reserve funds

Only trade with money you are happy to lose. This means you should never invest funds you need for living expenses, housing costs, or long-term savings goals, such as buying a home. It’s just not worth the risk.

  1. start small

When you start trading, don’t go all out. Choose one or two trades and invest only a small amount of money, watching carefully what happens. With these learnings, you can be confident with riskier trades later.

Do you trade? What helped you the most as a beginner? Let us know in the “Comments” section.