Online trading has now pretty much changed how traders, brokerages, and exchanges do business with each other. What once required dozens of phone calls for the investor and hundreds of calls a day for the average broker to facilitate, is now neatly condensed into easy-to-use online platforms that require little direct communication between the two.
Who can trade?
Anyone can trade online. Once they find an online broker (this site has it all) that can work with their trading needs. All will charge a flat fee per trade, usually offering lower rates for student and active investors, and most requiring you to maintain a minimum balance in your account to do any kind of aggressive trading on their platform. Maintaining a larger balance will also open the door to lower commission rates and other required fees you have to pay.
The SEC and other worldwide securities and stock agency overseers also have rules in place to protect investors with regard to their eligibility to engage in dangerous financial activities such as day trading currencies, securities, and options. Most major countries where trading occurs require traders to be an accredited investor, which often requires a minimum net worth, yearly salary, and minimum balance be maintained with your brokerage of choice.
Without further ado, here’s 5 online trading opportunities available for those who wish to enter into the online trading world.
There are likely more platforms to trade foreign currency in tahe world than there are actual forms of currency. The stock and commodities markets often get more fanfare due to the number of trading options, but Forex is the largest and most liquid of all markets. It’s very risky too. Not for the faint of heart, since currencies can rise and fall in the blink of an eye — start out small or don’t start at all!
The reason why this is the most in-demand among experienced traders is often a mystery to “regular” folks who maintain a steady job in their home country and rarely leave their comfort zone or feel any need to purchase foreign currency (which affects that currency’s price due to supply and demand).
However, the reason currency is so popular and often tempestuous is because any time a business or individual buys something from a foreign land — or a person decides to travel to another country — they need to purchase that country’s currency in order to make purchases. Therefore, importing/exporting is a major factor in how currencies perform all over the world.
The general global public affects currency prices every day by purchasing products, services, and paper currency from foreign lands: Consider how many products from China are purchased throughout the world, and the fact that initially, somewhere along the way someone had to purchase Chinese currency (CNY) in order to make those purchases. Understanding why and when a currency will rise or fall therefore requires a great deal of research (and luck!)
2. Stock Trading
The world of online stock trading is vast. Full of dozens of methods offering so many buying/selling options and agreements, that no single person could ever hope to master them all in this lifetime. With that said, playing the stock market is something anyone can get good at over time, but like all risky investments, you need to be cool as a cucumber to be successful and not lose your shirt!
At its barest definition, a public company such as Amazon (AMZN) releases a set number of individual pieces of their company (Ie., stocks) and traders buy and sell those stocks via brokerage firms who then facilitate those deals with the various stock exchanges around the world.
Smaller companies generally start out as penny stocks, aptly named because stock share prices are less than a dollar to start out with. Larger IPOs like Facebook, Twitter, Instagram, etc., may release their initial stocks for tens, even hundreds of dollars each (Facebook’s original IPO per stock was $38 USD).
There are a number of different methods and strategies one can employ in stock trading:
- Day Trading: Day trades are bought and sold before the closing bell (4:00 pm) of a given exchange. Examples of day trading strategies include — Arbitrage, Market Making, Momentum, Pattern, Scalping, Swing, Price Action, News Playing, and many others.
- Short Term: A period of one day, to three weeks before selling is considered short term trading.
- Medium Term: A medium term trade is a minimum of three weeks, leading up to a few months and a stop-loss order is usually put in place by the buyer to limit financial loss.
- Long Term: Long term trades require a lot of confidence from the stock buyer, as the stock is usually held for years on the faith that the company will remain profitable over the long term (Ie., stocks like Walmart, Amazon, EBay and the like).
While the stock exchange doesn’t trade in the trillions like Forex, hundreds of billions are traded on stock exchanges every day of a typical work week.
3. Options Trading
Options or “futures trading” is the epitome of speculation trading, and it’s not recommended for beginners. Options trading can be a very complex road to navigate, and fortune favors experience, combined with a Gordon-Gecko-like lack of emotion.
This type of trading can be very hit or miss, and typically requires years of trading experience across many methods in order to effectively speculate future prices, and also to understand the varying degrees of risk you take on with the option’s seller. Options trading at its core is nothing more than a buyer promising a seller that they’ll buy an asset or instrument at a later date.
These assets and instruments include most all traded financial products including: stocks, bonds, currencies, commodities, securities, real estate holdings, and others. There are a number of options trading methods available, with varying degrees of risk involved including ordinary, vanilla, and exotic (Eg., binary, digital, Bermuda, quantity-adjusting).
With options, you contractually agree to buy an asset or financial instrument at a certain price (called “strike price”) at a future “expiry” date. If the price goes up during the contract period, you can sell at a profit, If it goes down, you lose your investment plus any initial purchase fees and later penalties you agree upon with the seller. Wikipedia discusses the differences between different options contracts and the types of trades available in more detail.
4. CFD Trading
Contract For Difference trading, like all forms of trading is made based on buying low and selling high. Stock, index, treasury, currency, commodity and even sector CFDs are all offered to interested traders. The main differentiation with CFDs is that you never actually own the underlying trades.
The buyer and broker enter into an agreement that a CFD’s value is currently worth a set amount, for example $1.00 to purchase. Most CFD brokers only require that you put down a percentage down payment, let’s say as an example, a 5% margin payment is required for the trade you wish to make: In the $1 example, 5% would be $0.05 per share required to get your hands on that CFD.
Understanding profit in this area can be tricky for some to get, but the main gist is that you don’t start making a profit until a raising value covers the margin first. In the case of the example, you wouldn’t start making money until the CFD was worth 5.1 cents, because you have to cover the 5% spread you agreed on with the seller.
CFD trading has a lower barrier to entry, from a financial standpoint, than the methods mentioned already, when considering you don’t have to pay the 50% margin required by most traditional stock brokerages to make a stock or currency trade. However, if the CFD’s value goes down, you’re required to cover the losses to initial purchase value, and the margin value you paid down to enter into the agreement with the seller is lost entirely (Ie., in a loss scenario, the buyer covers the margin, plus losses on the value of the CFD).
5. Cryptocurrency Trading
There are a number of cryptocurrencies out there being traded on the cryptocurrency market. The future really isn’t clear, so most experts recommend short-term trading strategies for crypto, rather than the buy-and-hold, wait-for-the-value-to-accrue over time kinda methods used by stock traders. Popular electronic currencies include Bitcoin, Ethereum, Dash, and Litecoin.
Crypto can be very attractive for a number of reasons. One being that the Securities and Exchange Commission (SEC) and other various country-specific agencies — agencies which govern who and how often people can participate in dangerous trading activities such as day trading and other high volume short term trading tactics — do not have rules about trading crypto yet.
This means that the barrier to entry here is the lowest of any other trading method. A savvy cryptocurrency genius (or downright lucky investor) can make millions overnight. It can also put you into a black hole of debt you’ll never crawl out of unless you win the lottery! The trouble here is that these currencies aren’t monitored by regulatory agencies, so a lack of knowledge and ability to assess market conditions can put you and your money front and center in a Pump and Dump Scheme.
It goes without saying, after all you’ve learned today, that trading of any kind is a dangerous way to secure a financial future for yourself and your family. Most failures in the trading space occur when emotions like greed and desperation get in the way.
Always start out with smaller investments until you figure out what you’re doing, and if, in fact, you have what it takes to be a successful trader.