The activity of buying and selling financial instruments has been around for centuries. This process became more formal with the rise of official marketplaces such as the New York Stock Exchange, where physical certificates of securities were traded on the “floor” of the exchange by qualified professionals.
This floor trading has been all but replaced by electronic trading, and internet has made the activity vastly more accessible. The term online trading is usually distinguished from online investing by its timeframe: an online trader will take advantage of market volatility to profit from quick trades, while an online investor is more likely to buy and hold an asset to benefit from its long-term increase in value.
Different Types of Online Trading
One way to classify the different types of trading is by the underlying asset being traded. Online trading in the forex market centers on buying and selling currency pairs to profit from fluctuating exchange rates. Other traders deal in derivatives, such as binary options or contracts for difference.
These trades do not involve exchanging the financial instruments themselves; rather, traders speculate on the price movements of the underlying asset, be it a community, stock, or currency. And perhaps the most common asset when it comes to online trading is equities (such as stocks).
Another way to break down online trading is by the speed of the trade. Scalpers, for example, make numerous, very fast trade that takes advantage of the difference between the highest price a buyer will offer for a security and the lowest price a seller will accept. Day trading has a slightly longer timeframe, but traders will still open and close positions within the same business day, following price trends and patterns to make a profit. Position trading is longer still, and usually involves more research into the fundamentals of the underlying asset.
How to go About Trading Online
To access the world of online trading, you will need:
- An internet connection and a device to use that connection. For many styles of trading, time is of the essence, so the faster the connection the better.
- A broker. Most markets are regulated, so you cannot buy and sell on them directly. Rather, you need to place trades through a broker that is licensed to trade in your geographical area.
- A trading platform. Most brokers now offer trading platforms that traders can use to manage their own transactions directly. A good trading platform should be simple and stable. Many also offer a wealth of information on trading, as well as helpful analytical tools. The exact features you should look for will vary based on the style of trading you intend to use.
Now that computer power has been harnessed to make trades, traders have more immediate and convenient access to financial markets. They also have much more freedom to pursue the style of trading they prefer and chose from a range of financial product to buy and sell. Anyone with an internet connection and money to invest can learn about the different kinds of online trading, set up an account, and get started.
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