Trade refers to buying and selling of goods and/or services for money or money’s worth. It usually involves an exchange of goods and services for some monetary denomination. It is essential for the satisfaction of human needs and wants. It might be conducted for the sake of earning profit or to provide service to the consumers. The span of trading has increased manifolds with the passage of time. It started by trading among individuals within a country. At the present hour, trading has no geographical boundaries. With the technological revolution, the entire world has come down to a single platform and online trading has left no coins unturned.
Online trading is an act of buying or selling financial products using the medium of the internet. Bonds, stocks, futures, international currencies, and other financial instruments are various types of financial products which can be easily bought or sold. Historically, there was a broker who would invest money for someone else and would earn money from the commissions.
In order to trade online, one needs an account, some reasonable good amount in it to invest and internet connection. It can be accessed by anyone from anywhere. It could be for a short term, medium term or long term depending upon the number of funds available and risk-bearing capacity.
Types of Online Trading
There are many different forms by which an individual or an institution can turn into investors or investing institutes respectively.
- Day Trading
It is the most common method of trading wherein the financial securities are bought and sold on the same day. Historically, this was done by professional traders only. However, that has changed drastically. Now, traders involve themselves into different types of day trades in different specializations. It is a faster way to make huge profits in a shorter span of time. Also, this is very good for beginners to get a better understanding of the market at a much lesser amount of investment.
2. Position Trading
It is another method of online trading wherein the securities are bought and are held for a longer duration of time. The securities might be kept by the trader for weeks or months. Such trading is done based on extensive research of market trends. If done correctly, it can provide a rather large amount of profit to the investor. The investor must buy when a new trend begins and sells it when it reaches its peak before it becomes out-dated.
3. Swing Trading
This sort of trading takes places during the lifecycle of a trend. Investors try to predict the highs and lows on the basis of their own knowledge and research. In this case, the securities might be kept for a day or for months. It is another lucrative way to earn more only with appropriate research.
This method is the most unorthodox method of earning profits using online trading. It involves investing smaller amounts for a shorter span of time and then selling the security at a higher price than the buying price. This bidding is done when the market is fluctuating and the value of the security is shifting continuously. It involves lesser risk and doesn’t require much in-depth research.
5. Online CFD Trading
CFD stands for Contracts for Difference. The trader doesn’t have to buy the security. Instead, he buys the right to speculate the changes in the market price of the security. It could be a rise or fall in the value. CFD is offered by many different institutes. It involves very high profits but at the cost of high risks as well.
What can be traded online?
It is fixed income security. They are issued in order to raise capital by many companies, municipalities, states and even sovereign governments. The investor not only gets the principle amount back but also a hefty amount of interest.
Stocks or equities represent fractional ownership in a company and a stock market is a place where investors can buy and sell ownership of such investible assets.
Futures are financial contracts with a predetermined future date and price. It takes place when a buyer buys an asset, usually a physical asset from the seller. In return, they sign a contract called futures which states that the buyer would return the asset and get his principle and the interest on the set date.
Dealing in foreign currencies takes place through the forex market which facilitates exchanges between different currencies globally. It helps in determining the foreign exchange rate. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. Usually, a currency is bought in terms of another currency.
5. And other financial instruments
Advantages of Online Trading
- Reduced transaction costs
- Greater control
- Speedier and flexible
- Option to monitor investments
- A convenient method to earn
- Direct contact
- Faster transactions
Disadvantages of Online Trading
- Chances of investment frauds
- Lack of personal relationships
- Addictive and lucrative
- Subjected to typing errors
- Requires a lot of research before investment
- Works only with Internet
Online trading is a new and most conventional method of earning money using the internet. Just like anything else, it comes with pros and cons. There are various different options in which one can trade. Also, they can also choose from different methods as per their own convenience. But before entering into this new market, one must thoroughly do their research. It will help them get a better understanding of the market. Also, it provides a clear insight into the trends, companies and currencies in which the prospective investor can invest.