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WHAT IS ONLINE TRADING AND ITS TYPE

Everything Know about Trading

What is online trading?

Before starting with our today’s topic, the very first thing we need to analyse is ” What is online trading?”. Online trading is a popular method of transaction in products related to finance online. Brokers goes online to buy and exchange various stocks, commodities, bonds, ETFS etc. When a user places the order for buying any particular stock on an online platform, his order gets saved in the database of the trading member platform and the exchange platform. If the price matches with the user’s demands and he confirms the order, then the process is confirmed by both the parties and basically that’s how the concept of online trading works.

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Trading vs investing

Trading and investing both are two branches of engaging some assets in order to get a greater value. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with annual returns of 10% to 15%, traders might seek a 10% return each month. Trading profits are generated by buying at a lower price and selling at a higher price within a relatively short period of time.

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What is investing?

Investing is the method of dedication or assets which one puts in order to have a gain or increase in value or some growth over a period of time. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds, and other investment instruments. Investments often are held for a period of years, or even decades, taking advantage of perks like interest, dividends, and stock splits along the way.

What is trading?

Trading is another method of buying of various financial assets like forex, crypto currency, stocks or other commodities frequently in order to grow financially.

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Investing Trading
  • Investing involves long term engagement in the market.
  • This is a long term strategy.
  • They are involved in short term losses.
  • Trading involves frequent buying and selling of assets like stocks, commodities, futures etc.
  • This is a short term strategy.
  • They are involved in quick profit with the fluctuating market value.

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Trading future vs options

A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price.

An options contract gives the buyer the right to buy the asset at a fixed price. However, there is no boundaries on the part of the buyer to go through with the purchase.

Futures

A futures contract is an agreement between two parties for buying or selling of an asset at a certain time in the future at a certain price. Here, the buyer is obliged to buy the asset on the specified future date.

Risk:

The futures contract holder is bound to buy on the future date even if the security moves against them. Suppose the market value of the asset falls below the price specified in the contract. The buyer will still have to buy it at the price agreed upon earlier and incur losses.

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Options

An options contract gives the buyer the right to buy the asset at a fixed price. However, there is no obligation on the part of the buyer to go through with the purchase. Nevertheless, should the buyer choose to buy the asset, the seller is obliged to sell it.

Risk:-

The buyer in an options contract has an advantage here. If the asset value falls below the agreed-upon price, the buyer can opt out of buying it. This limits the loss incurred by the buyer.

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What is options trading?

Options trading is the trading of commodities that offers you the right to buy or sell a specific security on a specific date at a specific price. An option is a contract that’s linked to an underlying asset, e.g., a stock or another security. Options contracts are good for a certain time period, which could be as short as a day or as long as a couple of years. When you buy an option, you have can trade the underlying asset but you’re not forced to. If you decide to do so, that’s called exercising the option.

Types of option:-

There are basically two different types of options:-

  • Call option in stocks

A call option gives you the right to buy an underlying security at a particular price within a certain time period (the underlying security). The price you pay is called the strike price. The end date for exercising a call option is called the expiration date. Call options can be American-style or European-style. With American-style options you can buy the underlying asset any time up to the expiration date. European-style options only allow you to buy the asset on the expiration date.

  • Put option in stocks

A put option is the opposite of a call option. Instead of having the right to buy an underlying security, a put option gives you the right to sell it at a set strike price (think of this as putting the underlying security away from you.)

Put options also have expiration dates. The same style rules (i.e., American or European) apply for when you can exercise them.

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ALSO READ : WHAT IS OPTION AND FUTURE TRADING FOR BEGINNERS?

What is buying a put?

When you buy a put, you’re are basically buying a contract that gives you an option to sell a security by a certain expiration date at a certain price. Before buying a put, a few things to consider include:

  • How much you want to invest
  • What kind of time frame you want to invest for
  • Anticipated price movements for the underlying asset

Buying put options can make sense if you think the price of the underlying asset is going to go down before the expiration date. If you buy put options at one particular price, then the asset’s price drops, you can exercise your option at the original striking price.

Buying a call

Buying a call means you’re buying a contract to purchase a particular stock or asset by the time of the provided expiration date. When buying call options, it’s important to consider the same factors that you would when buying put options.

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What is forex trading?

Forex is a trading of foreign currency and exchange. Foreign exchange is the process where one currency is changed to another currency for a variety of reasons, usually for commerce, trading, or tourism. According to a 2019 triennial report from the Bank for International Settlements the daily trading volume for forex reached $6.6 trillion in April 2019. The foreign exchange market is a global place for exchanging national currencies. Currencies trade against each other as exchange rate pairs. Forex markets exist as on spot markets as well as derivatives markets, offering forwards, futures, options, and currency swaps. The foreign exchange market is where currencies are traded. Currencies are important because they allow us to purchase goods and services locally and across borders.

Market participants use forex to bid against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among other reasons.

ALSO READ : FOREX TRADE FOR BEGINNERS | HOW DOES IT WORKS?

 

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What is insider trading?

Insider trading involves trading a public company’s stock by someone who is non-public, and has all the material information about that stock for some reason. Insider trading can be either illegal or legal depending on when the insider makes the trade. Material information is sole sort of information that could eventually impact an investor’s decision to buy or sell the security. Non-public information is information that is not legally available to the public.

Insider trading is illegal when the material information is still non-public, and this sort of insider trading comes with harsh consequences.

Types of trade

There are different types of trading:-

  • Scalping
  • Day trading
  • Momentum trading
  • Swing trading
  • Position trading

These are the 5 main types of trading available to technical traders. Mastering the skills of a particular type of trading is important but one should also be aware of the other trading.

  • Scalping

Scalping is all about taking very small profits, simultaneously. Geneally, trades last from seconds to minutes. Scalping is a trading strategy that attempts to make many profits on small price changes. Traders who implement this strategy will place anywhere from 10 to a few hundred trades in a single day in the belief that small changes in stock prices are easier to catch than the bigger ones.

Scalping

  • Day trading

Day trading is all about buying and selling on the same day, without holding positions overnight. Compared to scalping, this style calls for holding positions for minutes to hours versus seconds to minutes. A day trader closes out all trades before the market closes. Most day traders use leverage to magnify the returns generated from small price movements.

Day trading

ALSO READ: BEST ONLINE DAY TRADING PLATFORMS IN THE UK 2022
  • Momentum trading

In momentum trading, the trader identifies a stock that is “breaking out” and jumps on to capture as much of the momentum on the way up or down as possible. They focus on stocks that are moving significantly in one direction on high volume. The typical time frame for momentum trading is several hours to several days, depending on how quickly the stock moves and when it changes direction.

  • Swing trading

Swing trading is the art of capturing the short-term trend. It is a style of trading that attempts to capture gains in a stock within one to seven days. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders are not interested in the fundamentals or the intrinsic value of stocks, but rather in their price trends and patterns.

Online trading

  • Position trading

Position traders stay in trades for weeks to months. The position trader endeavours to anticipate whether the current trend will continue for a much longer term than a momentum or swing trade. Position trading gives traders who cannot trade frequently a lot of freedom: profit potential is not diminished and position traders can make considerable gains. Long-term traders are not concerned with short-term fluctuations, because they believe that their long-term investment horizons will smooth these out. Position trading is the polar opposite of day trading, because the goal is to profit from the move in the primary trend, rather than the short-term fluctuations that occur from day to day.

Why is trading important?

Trade is essential for keeping a competitive global economy and lowers the prices of goods internationally as it encourages innovation and markets to become specialised.

The ability to trade also allows access to goods and services that might be of higher quality and lower cost than its domestic alter. In some cases, there may be no domestic alternative, and trade would then provide a resource that would otherwise be unattainable.

The impact of this is the ability for a country to develop in areas it would not have been able to and focus on developing areas it does have the ability to. An example of this would be Brazil providing its $26.66 billion abundance of Ore in exchange for $11.37 billion worth of cutting edge computer parts from China. The best of both worlds combine to their benefit, and global development is higher than it would be if it wasn’t for international trade.

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