Buying a share, commodity or currency and selling it on the stock market for more than the purchase price – that’s what trading is all about. It’s a risky business, and not for everyone. Investments, professions, strategy… follow the advice below before you get started.
What is trading and how does it work?
What is trading? Definition and explanations
“Trading” is the operation of engaging in the trading of goods or financial assets (directly or via derivatives) with the aim of making a profit.
This can include buying and selling:
- commodities, currencies, raw materials, etc. ;
- financial assets such as shares, bonds, options, etc.
There are also different trading styles, such as :
- fundamental trading based on economic and financial data ;
- technical trading based on graphical analysis and price models.
Does trading make money in United States?
Trading can be profitable, with high returns for professional traders.
But be careful, because to make significant gains, you generally have to take risks.
Trading results depend on a number of factors:
- the trader’s skills ;
- ability to analyse data
- risk management ;
- and so on.
It is important to note that trading always involves a degree of risk, and there is no guarantee of profit. Financial markets are influenced by many factors: political and economic conditions, interest rate fluctuations and other factors that are difficult to predict.
Everything you need to know about the different types of trading
In finance, trading can take different forms. Depending on the type of trading, you will not use the same financial instruments or the same strategy.
Day trading
Day trading involves buying and selling financial assets over the course of a single trading day.
Day traders take advantage of short-term price movements and close their positions before the end of the day to avoid the risks associated with overnight price fluctuations.
This is one of the most profitable forms of trading, but also the riskiest.
Scalping
Day trading is already a perilous exercise, but there’s something even more daring: scalping.
Its practitioners seek to take advantage of price microvariations in the space of two or three minutes. They are all whizzes at chart analysis.
At first sight, the gains aren’t huge (often less than 0.10% per trade), but by playing big and multiplying positions every day, some make fortunes.
Avoid before you have ten years’ trading experience.
Swing trading
Swing trading aims to capture short- and medium-term price movements.
Swing traders hold positions for several days or weeks to take advantage of price trends or corrections.
Unlike day trading, swing trading does not require positions to be closed at the end of each day.
Algorithmic trading
Algorithmic trading, or automated trading, uses computer algorithms to execute transactions on the financial markets.
These algorithms are programmed to :
- analyse market data (financial characteristics, economic environment and sector of activity, growth potential) ;
- make decisions based on predefined criteria;
- execute stock market orders automatically and quickly.
Long-term trading
Long-term trading involves holding positions over an extended period (several months or even years).
Traders look at the financial aspects of assets and seek to invest in long-term prospects rather than profiting from short-term fluctuations.
This approach is often associated with investments in shares, bonds, mutual funds, etc.
Start trading with the right IT equipment
For the first few years, a laptop connected to a second screen (20 inches to be comfortable) will suffice for your needs.
- This will allow you to do your analysis on one side and place your buy and sell orders on the other.
- Budget required: between 400 and 500 dollars for the laptop (trading software and platforms work with basic machines) and 200 dollars for the screen.
A word of advice: don’t listen to websites that tell you that their €3,000 platform is indispensable. It’s just marketing!
How do I trade?
Trading can’t be improvised. Even if there are training courses available, the most important thing is to practise so that you have the right reflexes.
Introduction to trading: taking the time to learn
Contrary to what some advertising suggests, you won’t become a trader in a week. Mastering the software (Metatrader 4, ProRealTime, etc.) takes a month of learning.
After that, you need to practise on a demo account for three to six months to get the hang of it: buying or selling? Aiming for 5% or 20% gains? The answers will depend on your ability to establish the right scenario.
So you need to practise a lot, doing it over and over again… Most experts reckon that you need at least a year’s training before you’re up to speed and making money.
Training in trading
To save time, training courses can be useful. For less than 500 dollars , they will give you access to :
- their website ;
- help tools ;
- explanatory videos;
- their weekly market analyses.
Trading: what strategy should you adopt?
Starting capital: at least €1,000
Many people start out with €200 or €300 in their trading account, hoping to double their capital every year. But they will soon be disappointed.
Not only are the chances of pocketing 100% of the gains each year slim, but in the early days you lose more often than you win.
- It’s the law of the game: the minimum stake to last more than a year is 1,000 dollars on a trading account. You still need to manage your risk.
- Follow the example of experienced traders, who never invest more than 1 to 2% of their capital per order. This will enable you to withstand 50 to 100 losses in a row without emptying your account.
Which financial products should I invest in?
Equities, stock market indices or commodities (gold, oil, etc.): there is a wide choice of instruments.
- However, it is advisable to bet on the most volatile products, whose prices yo-yo up and down (you can play both ways).
- In terms of stock market indices, the German DAX is very attractive
With equities, it’s trickier:
- To aim for quick gains, you need to spot stocks whose prices have been oscillating without a clear direction for a few days, then wait for a violent bullish or bearish start.
- However, spreads are often smaller (rarely more than 2% a day).
This is why many traders prefer currencies, where they bet on the movement of the euro against the US dollar, for example.
The price shifts are more explosive, but the trends are shorter, so you need to monitor your position very closely.
How long should you trade each day?
The right strategy is to concentrate on periods when trends are strong and offer the potential for capital gains, and to refrain from trading when things are calmer (30 to 40% of the time).
Lifting your foot off the gas is not a sign of weakness, but rather a sign of wisdom that will help you avoid trading overdose and the losses that go with it.
Without having your eye on the charts all the time, you need to spend at least one or two hours in front of your screens, in the morning or evening.
It’s a discipline you need to impose on yourself if you want to avoid missing out on good opportunities.
Trading: the importance of risk management
To avoid excessive risk, never commit more than 2% of your capital per transaction.
Preserving your capital
Managing risk in trading means first and foremost preserving your capital. The only way to do this is to limit your account exposure:
- Follow the example of professional traders, who never risk more than 1 to 2% of their capital per order, enabling them to withstand 50 to 100 losses in a row without emptying their account.
- Play for the long term, i.e. with weekly, fortnightly or even monthly profit targets, rather than multiplying buy and sell orders throughout the day. You’ll be less stressed and have fewer brokerage fees to pay.
Maximising profits
To maximise your profits, there is a simple method: after taking a position, place two ‘trigger’ orders:
- One (the take profit) automatically exits the stock market as soon as the profit target is reached.
- The other (the stop loss) to limit the loss in the event of a bad bet.
For example, you buy a stock at 20 dollars and aim for a 5% gain:
- You set the take profit at 21 dollars and the stop loss at 19.50 dollars .
- If everything goes well, you will receive your 5%.
- If not, your loss is reduced to 2.5%.
Many traders ensure that the gain is equal to twice the possible loss. All you need to do is make more than one bet in three to win.
now you’re ready to start trading. discover the platforms we’ve selected.
