Trading online for beginners

26 October 2023

A guide to help starters

Online trading is one of the forms of financial exchange. It uses different assets such as currencies, stocks, raw materials, etc. The most basic explanation of online trading for dummies is this: people predict the prices of these assets and when the appropriate time comes, they buy or sell them. The name online suggests that this type of trading uses the internet. It allows traders to do trading wherever they are.

Now, one thing to mention right away is that online trading is a very risky and manipulative business. People might have high hopes for it, expecting to get millions in a short period of time. But that’s not what happens in reality. In real life, people with little to no trading experience make poor decisions about when to buy commodities, stocks, or other assets, and especially, when to sell them.

So, the point is, you need to be realistic about what you’re getting yourself into. Now, online trading can definitely be very beneficial if you have proper knowledge and experience, as well as expectations, and in this guide, we’ll discover all the characteristics that any trader needs to know.

Beginners Introduction to Forex

Online trading explained as simply as possible

So, as mentioned above, online trading is essentially a speculative financial exchange that gets people different results - some win and some lose. What “speculative” means is that people try to predict if the price of one particular asset is going to increase or decrease. And that’s the whole idea - gains are made through speculation.

Traveling and trading

So, how to do trading online for beginners? Here’s the most basic real-life example that will make understanding online trading easier:
How does online trading work
Imagine you’re traveling to Sweden and you only have euros with you. You thought that since Sweden is a member of the European Union, it would accept its currency as well. However, as you go into the first clothing store and see 150 kronor price tag on a shirt, you ask a consultant whether they accept euros or not.

Paying with a card is usually not an issue, because banks can convert the currencies very easily, however, if you only have cash, it’s going to be a problem. The only thing you can do is go to the nearest bank and exchange your kronor for euros. For this argument, let’s say that for 15 euros, you can buy 150 kronor. This means that the exchange rate is 10 kronor for 1 euro.

Money constantly changes in value

Let’s now assume that you don’t have time to go to the bank, so you decide to do that later in the week. A week goes by and when you visit the bank, you notice that instead of 150 kronor, you are getting 170 kronor for your 15 euros. This means that for one reason or another, the EUR/SEK exchange rate increased from 10 to 11.3. So, happy with this bargain, you buy 170 kronor.

However, when you visit the shop, the consultant says the shirt you liked is sold. So, your efforts turned out to be in vain. But you decide to keep the money anyway. In a week, your journey to Sweden ends and your 170 kronor has been sitting in your wallet untouched. So, you go back to the same bank to buy euros.

And another weird thing happens. Instead of getting your 15 euros back, you’re actually getting 14. Apparently, the exchange rate of 11.3 in the previous week got even lower to 12.1. So, in two weeks, you lost one euro in this set of exchanges.

Online trading explained

So, even though it was accidental, you actually performed Forex trading, one of the forms of trading in general. And that is basically how online trading works too, the difference is that it uses the internet instead of the real banks or other exchanges.

To sum it up, traders tend to buy assets when their prices are low and try to sell them when the price increases. The difference between low buying and high selling prices will then bring a larger payout.

And since we are here, let’s take a look at different types of online trading

How does online trading work in different markets?

Online trading is quite a diverse environment with different markets and industries in it. You can be trading on the currency markets, company shares markets or something else. In fact, here’s the list of the most popular assets that go into the online trading category:

Forex
Stocks
Commodities
Bonds
Derivatives

Of course, this is not a complete list because people can pretty much trade with everything they have - or don't have. But official financial institutions and individual traders most commonly use those assets, which is why they are perfect examples for this guide on trading online for beginners. So, what does each of them mean? How are they different from one another?

Forex

As you saw in the previous real-life example, trading currencies is called Forex trading. The word “Forex” is derived from two words - Foreign exchange - and is pretty easy to understand: exchanging foreign currencies and getting a payout from it. So, we don’t need to spend a lot of time on that.

Stocks - buying a piece of a company

The next popular asset group is stocks. Stocks are pieces of an individual company that they release on the market. And there are various reasons why they would want to do that: either they want to get some funds for additional projects, or want to increase public participation in company management. The result is: traders are buying a certain share of the company.

And it works pretty much the same way as Forex: when certain events, be it political or economic, lower the prices on stocks, traders usually buy them at large amounts. This, in turn, increases the demand for the asset and boosts the price. And then, when the price is quite high, traders tend to sell their shares. This difference between the lower buying price and higher selling price results in payouts. But you have to remember that sometimes, even this online trading step by step guide and even the most comprehensive knowledge cannot save a trader if luck is against them.

Commodities - natural resource trading for starters

Then comes the next asset group called commodities. They can range from precious metals like gold and silver all the way to oil and gas. In short, everything that’s raw and can be found in a natural state can fit in this category.

Commodity trading is pretty much the same as previous assets, but there are still some differences. The difference is mainly in how the price changes. For example, gold is usually more stable than oil because oil is more connected to global politics and every major change can have a significant influence on its price.

Bonds - the government assets

Governments can also get involved in trading. From time to time, they issue bonds - the financial instruments that traders buy - or more precisely, borrow - from governments or big corporations. They issue bonds for getting additional funds from the public and after some time, they have to return them to the traders.

So, the bond market functions like any other market: the prices go up and down depending on how stable the political or economic situation is in the country. And trading works the same way too.

Derivatives - trading in advance

Trading with derivatives can be somewhat difficult to understand at first. But it’s not too complicated: basically, a derivative is an agreement between two or more sides on a specific asset and its price movement.

This is a more or less convenient form of trading because traders don’t need to buy actual assets. Just agreeing upon the future of price - whether it increases or decreases - is enough to perform a trade. And derivatives can be used for almost every asset, including Forex, commodities, etc.

How to learn online trading without putting yourself at risk

As mentioned several times in this guide, online trading is a very dangerous business and every trader is mostly extremely careful about doing it. The internet might be full of fairy tales about people getting rich by buying stocks or commodities, but that’s just not how it works.

In real life, people invest time and energy to become more knowledgeable about trading terms and techniques, as well as certain strategies. Sure, there are some extreme cases when people do get rich in an instant but you have to remember this: their success was purely based on luck and chance. Online markets are unpredictable, something can go wrong at any moment.

So, instead of rushing in with all their resources, traders take their time to get some answers to these questions: What is online trading? How does it work? What do I want to achieve by trading? Are my chances of getting rich real? The internet is full of answers to those questions - you can read books, guides, and tutorials and gain some knowledge. And the last two questions depend on your mindset.

Here are some tried and tested attitudes towards online trading:

Your chances of getting rich instantly are very low;
Even if you get proper knowledge in online trading, the risk-factor doesn’t go anywhere - being safe and careful is always a good idea;
It’s better to take things very slow and do online trading step by step. This means constantly checking the market, as well as political news, making a long-term budget with smaller bits for single trades, and just not expecting something unrealistic to happen overnight.

In short, the biggest factor in successful trading is your mindset and what your expectations are. Then come the knowledge and experience. But again, even if you’ve taken various tutorials for Forex trading for beginners - or for other markets - and become quite sophisticated in it, the chances of losing money are still quite high; even experienced traders can easily lose all their money because the world of online trading is very unstable. That’s why you need to be very careful about doing it.

Online trading - one of the main forms of financial exchange

Online trading is one of the types of financial exchange that has millions of users around the world. And it basically works this way: people speculate prices of different assets to get a payout. Usually, when the prices are low and starting to increase, traders buy assets, and when the prices are high and start do decrease, they sell them.

Some of the most popular assets in online trading are currencies, commodities, stocks, bonds, and derivatives. All of them have their own users - some people prefer currency trading, also known as Forex, while some - stocks, or any other asset.

One thing to keep in mind is that online trading is highly speculative and doesn’t work for anybody. Some traders find it useful to get knowledgeable in it and then start trading, but even then, it is possible to lose funds.

FAQ on trading online for beginners

Is online trading for beginners safe?

Not at all. As mentioned in the guide multiple times, online trading is a very speculative business that frequently leads people to financial hardship. You might be hearing stories about successful online traders and how they became millionaires. And many of them are true.

However, there are even more stories of unsuccessful traders. And it can be attributed to many reasons: they might have been inexperienced in trading, maybe they rushed a little bit too much, or maybe the market behaved unexpectedly. The point is, there are a lot of factors that can work against you and being prepared to face them is usually a good idea.

How to start online trading?

Starting your own online trading career isn’t exactly difficult. There are various methods that you can use either separately or in combinations. The easiest and most secure way is to start educating yourself first, gathering all the information about the market, assets, and terminologies.

Another method is starting to trade straight away. However, this might be a bit risky and even difficult, that’s why you can do small-scale trading by putting the least amount of resources at risk.

Or, you can combine the two methods and educate yourself with different materials while also trading online. Now, some people have been successful at one method and some at another, there isn’t one universal way - a very popular strategy is to try everything and see what works best for you.

What are the steps to start online trading?

Many people can agree that online trading can sometimes be a very intimidating process because it has so many individual elements and factors to take into account. And while every trader has their own story of how they stepped into this world, one thing is for sure:

You need to have a proper mindset. Keeping in mind that it’s probably going to take a while for you to get some significant results will prepare you for almost everything in this field.

Then you need to decide which type of trading is right for you. Is it stocks, commodities, or anything else? Knowing the market type can make it simple for you to get more educated rather than reading materials about every asset type.

Then you can make plans about when to trade, which platform to use, how much resources to spend, and more. Going step by step is usually a good strategy for staying focused and not getting overwhelmed.

How to learn trading skills?

There are many ways of learning to trade to become good at it. A more traditional way would be to get a university degree in economics or finances. And while it takes a lot of time to complete your studies, you can actually get some valuable knowledge that can easily translate into online trading.

However, you can also get trading skills by searching through the internet and finding various materials about this subject. You can actually find a lot of valuable books and tutorials that can help you gain some basic and even comprehensive knowledge. But research about trading can be a bit long and tiring.

What are the different types of trading?

Trading is a very diverse financial activity and unites various trading types in its catalog. The most popular types are:

Forex - trading with foreign currencies and taking advantage of differences between their prices;
Stocks - trading with company shares that change depending on the prestige and success of the company;
Commodities - trading with gold, silver, oil, and other raw material that can be found on our planet;
Bonds - lending the government some funds for future payouts
Derivatives - trading on credit

There are, of course, other types of trading like real estate, and many more. In fact, people can trade with any asset that they have. It’s just those types that are considered to be the most popular.

What changes the prices in online trading?

Since online trading is this complex thing with various elements in it, the factors that drive the prices are also diverse. Depending on which type of trading you’re doing, global politics, economy, and even culture can have a massive influence on prices.

For example, in Forex trading, the monetary policy of a country can have a big impact on the exchange rates. This, in turn, can increase or decrease the differences between the buying/selling prices and translate into payouts. When the goal of a trader is to learn how to trade online, they often look into how governments manage their monetary policy, because it helps predict future changes.

What are the risks of online trading?

There are many cases of safe online trading stories, but it’s mostly due to a lot of luck. There are many dangers associated with online trading. The first and most basic one is the lack of experience. Taking things slow is not something to be ashamed of, in fact, it’s something that the most successful traders did back when they were just beginners. Once they had gained the knowledge they needed, they started to increase the risk of their trades, but before that, almost nobody dedicated all of their resources at once.

But even if you’re experienced and have gained enough knowledge in this business, there are still some possibilities of market failure or crisis. So, staying attentive and keeping an eye on every major development is a very common practice for successful traders.