Chief Trade Strategist at CMTrading, Fred Razak, has been trading the financial markets for over 20 years. Here he answers 10 pressing questions about online trading frequently asked by Internet users.
What is stock trading?
“Not to be confused with stock investing, stock trading is the act of observing price movements in specific stocks throughout the day, then anticipating and speculating on future movements. of that stock and then take a pragmatic position (i.e. buy and/or short sell the stock) to make a profit.
“Essentially, as a stock trader, you look for trading patterns and signals in the market and take advantage of price movements – up and down.
“If the price of a stock goes down due to various circumstances but you think it might rebound in the future, there is an opportunity to make a profit. It’s not an exact science, but it There are many historical factors and patterns that you can refer to to forecast future results.
What is options trading?
“Options are contracts that allow you to take the ‘option’ to buy or short sell a tradable asset or choose not to take one. So you are not buying the actual stock, you are paying for the right to buy or sell the stock. Think of it as a down payment on something – not the full value, which gives you the flexibility to buy or sell something in the future.
“When you buy an option, you are basing your speculation on the anticipation that the price will rise, but since you have already locked in the price today, you can profit instantly when the price trades above your price. call the option. You then have the right to trade the asset on that date. But you don’t have to. If you decide to trade, this is called exercising the option.
“Options are traditionally used in hedging strategies to reduce market risk.”
What are CFDs?
“CFD trading or ‘contract for difference’ trading means that you are not trading the actual asset; rather, you are trading a representation of an asset. In the United States, CFDs are only traded by the major financial institutions themselves, not retail investors; while outside the US, CFDs are quite common and are traded by both.
“A CFD is a simple contract between a trader and a seller. In stock trading, if you bought 10,000 shares at R2.00 each, you would pay R20,000. But if you buy a CFD instead of buying the shares, your broker may offer you a CFD at 10% of this value, with a margin/difference agreement of 10%.
“With a 10% deal in place, you are exposed to the same 10,000 shares at just 10% of the price a buyer of the shares would pay. This means you pay R2,000 and if the share price goes up by 5c, you make a profit of around R500 (5c x 10,000 shares = R500). So you get back your initial investment plus the difference.
What is leveraged trading?
“Leverage involves the ability to control a greater amount of money based on a bona fide deposit. In other words, someone who opens an account with R 100 can trade more than this amount to take advantage of the markets.
“Leverage is a trading mechanism that investors can use to increase their exposure to the market by allowing them to invest less than the full amount needed to trade the asset.
“The trader uses credit provided by a broker so that he only has to invest a percentage of the value of the trade – BUT – something a trader should always consider is his coverage or risk ratio because the trader is liable for any loss, not the broker.”
What is forex trading?
“Forex trading is very common in the international trading arena. The principle is very simple. In fact, the concept is similar to stock trading in terms of price fluctuations and cashing in on those fluctuations. For example , you would have two currencies traded against each other, you buy one and sell the other or you sell one and buy the other.
“Suppose you were trading US dollars against South African rands, you would buy one currency when its value goes down and then sell it against the other currency when the value goes up – a simple principle of profit and loss.
What is futures trading?
“Futures contracts are a popular way of learning for novice traders. Futures trading is an agreement to sell between a buyer and a seller for today’s price and delivery of the asset on a certain date. future, thereby locking in the price now.
The buyer agrees to buy a commodity (or forex or stock) on a certain date. The seller undertakes to supply the goods at the future date at the price indicated today. In futures trading, once the agreement between buyer and seller is finalized, the agreement stands, even if the price of the commodity increases on the specified date.
“A good example of this is when the price of oil is traded as a contract. It is done this way to establish a basis for global financial stability of the price of oil. If the price of oil is $100 today today and you agree to buy it at $100 a month from now on, even if it goes up to $150 that month, you’re still paying $100.
Conversely, if the price drops to $90, you will also pay $100. Thus, the buyer or the seller could gain or lose, depending on the price movement of the commodity. Establishing these agreements helps transport companies like airlines to set prices without too much exposure”
How do you trade stocks?
“That’s a straight answer. No matter what you’re trading – whether it’s futures, CFDs, currencies, symbol indices or anything else – never gamble. Always apply a technical analysis before you invest any money.And always work with a reputable broker who can educate you and help you learn.
“Never go overboard. Start by taking responsible risks with small investments that are within your comfort zone. Opportunities to become more aggressive and trade bigger will always present themselves, but initially you want to build your confidence, both in yourself and in the markets. Always start by managing your risk.
What is scalping?
“Scalping is a method of entering and exiting markets in a very short period of time and making many, if not hundreds, of trades daily with small profits. Most of the time, scalpers are looking to enter and exit a trade within seconds.
“Using this method, exposure is limited to additional amounts, and even though the profits are small, the risk is reduced. I might even call it ‘intraday’ trading. It is an efficient and time-consuming way of trading which won’t net you a fortune overnight, but can pay off with patience and strategy.
How do you trade cryptocurrencies?
“That’s the million dollar question (or about 30 Bitcoins). Cryptocurrencies are long gone. And most technical analysis is based on limited historical data. So it’s a bit more difficult to specify exactly what the game entails.
“Bitcoin Trading is volatile and unpredictable. Similarly, in the early 2000s there was the dot-com boom, which briefly traded like cryptocurrencies trade today. But the dotcom bubble is quickly fallen out of favor Bitcoin may or may not experience the same volatility, but it is still trying to make a name for itself.
“Bitcoin historically fluctuates in shorter timeframes and due to volatility, scalping is a way to potentially capitalize on this and minimize your risk (but that’s just opinion, not gospel). Trade sparingly and cautiously, not necessarily daily, but potentially enough to produce a steady stream of income.
How are commodities traded?
“Commodities are very closely traded under the umbrella of futures contracts. Commodity symbols expire month-to-month unless you have a recurring contract – for example, with oil or gold. however, you can simply trade the asset itself without a futures contract.
“As with any other asset, applying an informed monthly analysis and partnering with an informed broker is the best way to go.”
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