Trading

Open a trading account

This might sound obvious but it’s important that you find the right platform to meet your individual needs. I have conducted detailed reviews of all the platforms available and summarised my top 10 trading platforms. This should help you make an informed decision quickly.

If you are reading this article, it’s safe to assume that you are a beginner. Therefore, you should find a platform that offers the tools and resources you need as well as excellent educational facilities.

If you are interested in starting off by copying the trades of more experienced traders, then eToro is one of the best platforms for copy trading.

Learn about the stock market

Trading requires you to dedicate time to studying the stock markets in order to anticipate price movements and identify trading opportunities. There is a plethora of information available, often for free.

Study the various international markets, paying particular attention to rising and falling prices, which will help you decipher whether you’ll buy (go long) if you think there is a chance that the asset’s price will go up, or whether you will sell (go short) if you think it’s likely that the asset’s price will fall.

Understand how to manage risk

As mentioned, trading is often considered inherently risky when compared to investing. However, that being said, there are tools and strategies that can help you reduce your exposure to risk.

A good platform will provide a number of risk management tools that you can use to bring your trading in line with your risk appetite. These include::

• Stop-Loss Orders to automatically close your position in the event the market starts to move against you
• Guaranteed Stops to close your position at a predetermined price as set by you
• Price alerts, often sent straight to your phone to keep you up to date on market movements
• Negative Balance Protection to prevent your balance from going into negative – this feature is a requirement of any FCA regulated financial platform

Hedging your positions can also help mitigate your exposure to risk. Make sure you are familiar with hedging strategies.

Practise using a demo account

An excellent place to start schooling yourself in the art of trading is with a demo account. This allows you to practise your trades in real market conditions without risking any of your personal funds.

Most trading platforms will offer a demo account, which mimics exactly the financial markets and which you can utilise before opening a live trading account.

Day trading: Day trading uses small price movements to buy and sell assets within a single day. This requires careful monitoring by day traders in order to make a profit from short-term price fluctuations.

Swing trading: Swing trading can be less labour intensive as it requires the trader to hold their position for several days or even weeks. Swing trading aims to profit from short to medium term price trends by utilising technical analysis to identify potential entry and exit opportunities.

Scalping: Scalping is possibly the most labour-intensive of all the strategies, as traders aim to make a significant number of small trades throughout the day in order to profit from tiny price movements. Positions are often held for very short periods of time, mostly seconds or minutes.

Position trading: Position trading resembles investing the most. It is a strategy with which traders take a relatively long-term position in the financial markets. This can extend from weeks to months and even years. There is still a requirement to analyse fundamental factors, macroeconomic trends, and long-term price patterns when using this strategy.

Open an account – this is a relatively simple procedure that can be done in mere moments. You will need to provide some personal information, including your National Insurance number.

Fund your account – the amount of funds you place in your account will determine your buying power when it comes to placing your first trade.

Research and analysis – use fundamental analysis, including financial data and news, as well as technical analysis, including price charts and patterns, in order to make informed decisions. Always remember that past performance is not an indicator of future results.

Select an asset and market – most commonly traded financial instruments include stocks, bonds, commodities, currencies, and derivatives such as options and futures.

Decide whether you will be using leverage – leverage allows you to take a much larger position than you would otherwise be able to access with the funds that you have. Make sure you understand leverage, as while it can significantly increase your profits, it can also increase your losses.

Set your risk management tools – including order types, Stop Loss, and Take Profit.

Place your trade – specifying the number of units or contracts you wish to trade.

Monitor your trade – depending on your trading strategy.

Close the trade – either manually or by placing a closing order.

Review and analyse – Trading is a constant learning curve and by reviewing the outcome and analysing the results, you can learn from your experiences.

That being said, there are several advantages to CFD trading, including:

• A wide range of underlying assets, including stocks, indices, commodities, currency or forex, bonds, and more
• Leverage, which allows traders to control a larger position size with a relatively small amount of capital.
• The ability to profit from rising and falling markets means traders can take advantage of market volatility
• Markets are available 24/5 with traders being able to enter and exit positions relatively quickly

Please bear in mind that more people will lose money trading CFDs than those who will make a profit. Trading CFDs requires a lot of knowledge and experience.

Consider: Read our guide to trading CFDs if you are unsure where to start.