Some basics to get started with trading!
It's trading, not investing!
Investing means you are buying stocks or other assets for long term holds. In (Day)Trading you buy the world’s biggest stocks and other popular markets mostly through CFDs (contracts for difference). CFDs are a kind of derivative, meaning you do not own the underlying asset itself. Instead, you buy or sell entities of a given instrument depending on whether you think it will go up or down.
What Assets can You trade?
When you are trading CFDs, you can open positions on a lot of different asset classes, like shares, indices, currencies, commodities and cryptocurrencies – all at one broker.
You profit from rising and falling prices
CFD trading allows you to profit from rising or falling prices. You can make money on both sides. Buy an asset to go long (if you think the price will rise) or sell an asset to go short (if you think the price will go lower).
Use a leverage to your advantage
Most of the CFDs are leveraged. This means you are capable of taking larger positions with a small amount of capital. You only have to put down a fraction of the total costs for the assets. You “borrow” the remaining capital from your broker and have to pay fees for it, if you hold the position overnight, these overnight fees are also called Swaps
What does margin mean?
Trading with leverage is also referred to as trading on margin. This is because the funds for opening and maintaining a position are only a fraction of the total costs.
You pay only a small part of the actual price. For example, a 5% margin requirement means that you have to deposit only 5% of the trades value you want to open, and the rest is covered by your CFD Broker.
Margin requirements differ depending on the asset and the authority you want to trade. The lowest margin requirement ratio legit brokers offer are currently 0,2% (max leverage 1:500).
What’s a Margin Call
If the trade goes against you and your account value falls below a certain level, you get a margin call requesting to fund your account or reduce positions. In extreme cases, the broker may be forced to close your positions.
What's about the risk
Trading, investing and everything related to it is risky. That is a simple fact. While trading with leverage means that your potential profit increases, your chances of suffering also from bigger losses are also elevated.
Fortunately, serious Brokers implement negative balance protection for all clients, so you can never lose more than you invested. Additionally, stop loss orders allow you to protect your trades and capital. These stops protecting you from any unforeseen events in the market.
What is a stop loss (SL)?
A Stop Loss order is one of the most important elements for a profitable trader. When a trade goes against your foreseen direction, it closes the position when a specified price is reached. Stop losses are mainly applied for two reasons. First to prevent your capital from severe losses and secondly to secure profits.
Stop losses can be very useful to secure profits when a position goes in your favor. Additionally, the Stop Loss saves you from losing too much when the trend changes its direction and goes against you. When the markets are getting choppy, stop losses are helping you to limit risks.