What is Online Trading [2021]

What is online trading? How does it work? Is it true that you can make a lot of money without doing absolutely anything? Or is it a real legalized scam? Trading is now an activity for everyone, just a computer or mobile phone connected to the internet is enough to start trading.

Unfortunately, many people don’t know what online trading is; the problem is that there are still aspiring traders who do not have a clear idea, just think of the many wrong opinions that still exist.

This guide explains, in detail, what online trading is and how you can get the highest profits. It also explains which are the best platforms to trade with some concrete examples, such as the eToro platform.

Why do we immediately mention eToro? Because it is the only trading platform that allows you to copy what other traders do, in a completely automatic way.

In this way even beginners can get the same results as professional traders from day one and can also learn from them (if they want).

What is online trading: the Meaning

The right way to start our analysis on online trading, is to start from the meaning. The word “Trading” means the activity of buying, selling, or exchanging goods or services between people, firms, or countries. When people, firms, or countries trade, they buy, sell, or exchange goods or services between themselves.

In this context we refer to the trading of financial assets, such as stocks, commodities, currencies, cryptocurrencies, government bonds, etc..

The word online refers to the fact that trading, by now, is done exclusively via the internet, using an online trading platform via a phone or a computer. When Warren Buffett, one of the greatest traders in history, began operating on the markets, internet did not exist and the orders had to be communicated to his bank by phone or by going personally to the banks.

Trading online therefore means making a profit by exploiting the movements of securities listed on the financial markets to your advantage.

Careful: the fact that trading means to exchange goods must not be misleading and must not generate too limiting a definition of online trading.

Unfortunately, many novice traders think that trading online simply means buying a financial security and waiting for the price to rise and then resell it. Although this is a form of online trading, it is certainly not the only one (and probably not the most profitable).

The best broker platforms (which we will discuss shortly) offer two types of transactions: the “buy” of financial securities and the “short sale” of financial securities.

When you buy a financial security, you make a profit when the price goes up. When, on the other hand, you sell short, profit comes when the price drops. If the purchase is a very intuitive operation after all, the short sale is an operation little known (unfortunately) by the general public.

Selling short means selling a financial security without owning it (for this reason it is called, in the short term). It is a purely speculative operation that allows you to earn when the value of the security drops.

We can summarize it by saying that online trading allows you to make profits from the change in the price of a security, no matter whether positive or negative. The profit obtained is proportional to the change in price but can be multiplied by applying leverage and growing over time thanks to the compound interest.

Read also: Short Selling

Online Trading how to start

Now that we have seen what online trading is, we can explain how to start. Very often beginners think that it is something complicated. It’s not true. Once you understand the concept that you can earn both when the price goes up and when it goes down, more is done. 

In practice, to trade online you have to predict the future trend (in the short term) of a financial security. There are several ways to do this:

• Technical analysis: we analyze the price graphs of the financial security in search of specific patterns that can help make a correct forecast.
• Fundamental analysis: the fundamental economic situation related to the financial security is analyzed to make forecasts. For example, if we want to make predictions on the performance of a listed share, we can analyze how the company is doing. Or if we want to make a forecast on a currency we can consider the country’s overall economic performance.
• Copy the best investors: it is a technique that has always been used, to observe what the great traders do to reproduce their strategies. Today this is possible thanks to the automatic Copytrading techniques of the eToro platform (which we will discuss shortly).
• Trading signals: In this case, the indications of a financial analysis center (which can use very sophisticated techniques of fundamental analysis or technical analysis) are followed. These signals can be sent by email, SMS, WhatsApp or Telegram. The best free trading signals service is this (click here to sign up).

Obviously beginners tend to start mainly by copying the best or operating with trading signals (both solutions are excellent). Among other things, watching what the big traders do or the forecasts of the big financial analysis centers has a very high didactic value: it is probably the best way to learn online trading!

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eToro

At this point it’s time to make some concrete examples and we start from eToro that many consider as the best option to start trading online. eToro is a free and commission-free trading platform.

The interface is really simple and intuitive but, above all, eToro offers the only Copytrading system that really works. Thanks to this automated trading mechanism it is possible to identify the investors who have earned the most in the past and can copy them completely automatically. If you want to know more about this broker, you can read our full review on eToro.

ForexTB

ForexTB is an excellent option for anyone who wants to start trading online. Many of those who don’t even know what online trading is all about start with ForexTB and manage to get excellent results.

Why? First of all, the interface of ForexTB is really simple and intuitive. Secondly, all members can receive free phone support from a true online trading expert.

This expert gives precise indications that help everyone, even those who do not know what online trading is, to operate without errors.

Those who want to learn more, can download a free online trading course: it starts from the basics of trading and explains, in a simple and practical way, how to make money. It is not one of those courses that only wastes time with (useless) theory. The great news is that it is completely free. Unfortunately, many trading courses are paid and, in most cases, fall into the category of unnecessary courses because they are made only of theory.

In a few months this course was downloaded by more than 100,000 people.

The benefits of ForexTB certainly don’t end there. ForexTB, in fact, offers all its members free subscription to an excellent trading signals service, processed by the famous independent financial analysis center Trading Central.

Usually, services with such accurate forecasts have a high subscription cost. ForexTB offers it free to all members.

You can click here to request ForexTB signals
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Technical/Practical tips for Trading Online

Let’s now understand how to trade from a technical and practical point of view. This is not anything too complicated. The concepts that you need to know in order to trade effectively and be able to bring home the economic results set are very basic.

How to choose an asset

In the financial market, as a trader, you will have access to numerous types of markets. The essential thing during trading is to understand how these types of markets work and which ones you should invest in, based on your trading strategies and personal propensities.

Stock market is certainly one of the most interesting markets for a novice trader. It includes thousands of companies, in market such as the European, American or Asian one, on which it is possible to buy stocks and make profitable investments. By trading online, in fact, you can take advantage of the rise and fall of the share price of large companies and always make profits.

Forex is also available in financial trading, here it is essential to choose the right currency pairs. In order to operate correctly without problems, you can opt for not too volatile currency pairs, whose price does not vary very much over time. Most people fail to trade Forex or stocks due to the lack of sufficient information.

Well thought-out decisions must be made on:

• Investment Timing
• The amount to trade
• The forecast you make (forecast of the market trend)
• Choice of the moment of entry and exit from the market

On broker platforms, there are many trading assets and it may be difficult to choose the right asset. If you choose the wrong underlying, in terms of forecasting complexity, your trading operations will also become much more complex to manage. This can cause losses to the investor.

4 practical tips to avoid mistakes:

1 – Familiarity

This is where most traders start having problems. Instead of trading on assets they are well aware of, they specialize in assets they know nothing about. It is not uncommon to see a trader who knows a lot about currencies, starting to open operations on complex derivatives, such as interest rate swaps or too volatile and therefore unpredictable investment goods.

Instead of doing this, it is necessary to negotiate on assets whose historical and cyclical nature is well known. In fact, it is possible to earn very well even by focusing on a single title. Subsequently, it will be necessary to diversify the investment portfolio, but to start, trades on one asset are more than good.

2 – Asset Liquidity

It is very important to consider liquidity when selecting the financial assets you intend to trade. Liquidity is created by the demand and supply of a specific security. It is important for you to trade on assets that are highly liquid.

For example, a currency pair like EUR / USD is more liquid than a currency pair like USD / TRY. This is because international trade involving the dollar and the Turkish lira is very limited. Similarly, there is much more demand for a commodity such as crude oil than for cotton, therefore this is an aspect to consider for those who invest in raw materials.

As for stocks, there is much more demand for Facebook than for companies that have just arrived on the stock market. The amount of liquidity leads to an increase in demand. This means that your companies will always find buyers and it will always be possible to trade.

3 – Price Action

The action of the price of a security is very important. A stock whose price doesn’t move often isn’t a good stock because it won’t earn you anything. A stock whose price is trending is usually the best. A trend can be an upward or downward movement of a security.

When the price moves upwards, the trader has two choices:

• He can enter into negotiation and make money when the price moves up. It may also short-circuit a security whose price is moving downwards.
• He can wait for a turnaround. In finance, there are always reversals. The difficulty in this is finding the exact spot where the title will reverse itself.

All of this can be identified through the use of specific trading indicators such as Elliot waves.

4 – Economic Data

A new trader should avoid trading securities that will be directly influenced by an economic data. For example, if the Fed is making an interest rate decision today, you should avoid trading any currency pair with the dollar. This is because you don’t have a good understanding of how to trade during volatile markets.

Same when a company is expected to release its earnings. On the other hand, if you are an experienced trader, these periods will be very important for you because in these periods you will make most of the money.

Online Trading with Economic Calendar

The economic calendar is a clear calendar, known in advance and is free to find on the Internet as many websites offer it.

Many Forex and CFD brokers have the economic calendar as part of their platform, which means it is integrated and can be found without leaving the broker’s website.

This calendar is easy to use and interpret as it has clear rules that prove it:

• The time of publication of the economic news
• The currency that will be affected
• The standard interpretation (how the currency should move based on the actual news that is released)
• The importance of the economic release; in this way, it is possible to draw a graph and identify possible “tops” or “bottoms” in a trend, growth or weakness

Economic Calendar Check List

There are many things to look at when studying the economic calendar and the following list should be helpful in checking the most important ones:

1 – Compare the Data

First, there is the date the trader is interested in, as the economic calendar shows not only the economic events that should be published in the future, but also the previous ones. So if you are interested in finding a trend or what the previous data are and looking for a comparison, you can select the period.

2 – Market Correlations

There is nothing more important than knowing which currency is affected at the time of news release. If the news is coming out of the euro zone, then the euro will move a lot, so look for the euro pairs that move the most.

On the other way, if the news comes out of Australia, then the Australian dollar pairs will be more active. If, however, the news comes from China, then the Australian dollar is still the most influenced, because it is known that Australian exports go mostly to China.

3 – Historical and Future Analyzes

The next thing to watch is obviously the previous “release”: what happened when a given news was released? Then you have to look at the expected value after the release, and of course, in the end, the actual value that is created on the market.

Conclusions

What is online trading? It is a speculative investment that generates profits when the prices of financial securities rise or fall. To trade online, therefore, you need to be able to make predictions on market trends. There are various systems to do this (technical analysis, fundamental analysis) but whoever wants can simply copy what the best traders do with eToro Copytrading or they can subscribe to a good trading signals service such as that offered for free by ForexTB.