When you think of trading in the financial markets, what do you think of? For most people, they think of Wall Street types shouting on the phone or sitting behind a bank of computer screens. Indeed, this image has been reinforced by a number of movies and other snippets of popular culture. However, the important question is whether this is exclusively the realm of sophisticated investors? Can an average person from their home pick up trading and make reasonable returns?
The answer is yes.
Trading online is now within the reach of millions of people worldwide. However, before you can actually embark on the trading route, there are a number of steps that you should follow.
1. Brush up on the Basics
Although one does not have to have Wall street experience and an education in finance in order to succeed in online trading, a certain degree of basic understanding is indeed required.
The trader should first cover the basics of finance and economics. This will help cement some elementary understanding of how changes in the global economic scene will impact on asset prices.
Similarly, a simple understanding of how supply and demand will usually drive asset prices is needed if one is to be expected to exectute trades on a broker platform.
Once you have an idea of how asset prices are likely to move given economic changes, you have to take the time to read up on the numerous financial instruments that you can trade.
There is Forex, Equities, Commodities and Crypto Currencies. Then, once you have decided what asset class you would like to trade, you need to decide on which particular assets within that class you want to trade.
I am generally of the view that when a trader specialises in a particular asset, they are able to learn all of the unique factors that could have an impact on that asset and hence be better than the competition.
It also helps to reach out to professional managed account traders in order to tap their brains for knowledge on how they manage trades and which asset classes / assets they are most comfortable trading.
2. Study the Instruments
Now that you have an understanding of the type of asset that you would like to trade, you have to narrow down the particular instruments that you would like to use.
There are a number of trading instruments but two of the most popular are CFDs and Binary Options. These two instruments differ in a few fundamental ways.
A CFD is a levered instrument where the trader will be taking a view on the spread of the asset price when opening the trade. A CFD is traded on margin which means that can indeed be quite a risky investment.
A binary option on the other hand, is an instrument with a defined downside risk (premium) and a defined payoff. This is sometimes why traders enjoy trading them as they know the amount that they are likely to lose on any given trade.
You can read more about binary options vs. forex and CFDs if you are interested in brushing up on the fundamentals.
3. Formulate a Strategy
Once you know what assets you would like to trade as well as the type of instrument that you will utilise for the trading, you need to formulate some sort of strategy before you decide to trade.
There are three types of strategies that you should at least have in order to increase your chances of success while trading. These are a money management strategy, a trading strategy and a risk management strategy.
A money management strategy is essential to you being able to keep control of the funds that you have in your account. It is also the strategy that you will use to strategically upsize or downsize the trade amount.
Similarly, you need to know what trades to place according to some sort of trading strategy. This could involve the use of some established disciplines like technical analysis, fundamental analysis or a combination of both.
You also need to be able to manage your risk. If you cannot control your impulses or take the risks at the right time then you are unlikely to take advantage of opportunities.
4. Find the Right Broker
This can be one of the most fundamental steps that the trader can take when they first start. Indeed, the broker that you select could impact on your profitability in a number of ways.
Firstly, the broker will be taking a commission and if the broker is not a legitimate broker, then the amount that they will be charging may be above market standard.
A broker also has to have a really efficient and functional platform. The trader needs effective tools like charting, news feeds and seamless execution if they are to implement some of the strategies above.
Lastly, the broker should allow the trader to trade on a demo account with free money before any financial commitments. This will allow the trader to get comfortable with the platform and process before trading.
The broker must be regulated and have an established track record. IQ option is one of the best brokers one can use as a new trader. You should take a look at other online sources like this IQ option broker review in order to learn more about the broker.
4. Start Trading
Once you have set up an account with the broker and are comfortable with your trading on the demo, you can progress to the next stage and fund an account.
You should start small and make sure that you stick to all of the guidelines that you set yourself while trading on the demo account.
It is also really important that you are not dogmatic. Some of the best traders know that their strategies should be adapted and tweaked if the desired results are not being achieved.
One of the most critical things that someone should do when trading is to make sure that they are able to remove emotion from the decision making process.
Trading is all about being analytical and calculated. You need to be able to take the risks and hold back from trading based solely on your analysis of where the markets are moving and what the most optimal trade is.
Don’t Give Up
Although these steps may initially seem quite laborious to you, they are essential to you being able to trade profitably over the long term.
There will come times at which you may feel slightly disenchanted and question whether trading is really for you. These thoughts should not be able to cloud your judgement.
When you turn on your PC for the first time and try to trade, it may not be profitable. Trading is like everything else in life. What you put in is what you get out.
If you are dedicated and are willing to constantly evaluate your trading, you will be on the road to trading success and financial freedom.