In recent years, trading has become very popular, but not everyone understands the concept well or knows how to implement it.
What is trading?
In this article, we will explain in detail what trading is, what you need to be a trader and try to answer the question of whether you can make a living from trading.
The word trading literally means ” trading ” or ” trading” “, although the English term is most often used.
However, when we ask ourselves what is trading, this definition is insufficient, because it is not such a simple activity. Trading involves much more than just dealing in a financial asset.
Trading is the activity of speculating in the financial markets with the aim of making profits. .
It consists of buying or selling different types of financial assets, such as stocks, currencies, commodities and cryptocurrencies, among others.
In summary, trading is a type of investment that provides returns, but at the same time it involves significant risks that must be managed in the best way.
Differences between trading and investing
In trading as in traditional investment, we expose our savings to the financial markets , but it is worth clarifying some differences between these two activities.
➤ Investing generally refers to the long term : buying an asset, usually a stock, to hold it for a long period of time in order to obtain regular income, in the form of a dividend or an annual return .
➤ Trading , on the other hand, is more speculative and generally refers to the short/medium term . The trader seeks small returns by opening and closing multiple positions, and therefore requires greater attention to capture entry and exit opportunities as they arise, either within the same day or over several days .
Trading has a wider variety of financial assets , including derivatives, instruments that allow you to profit from both rising and falling markets, and which in many cases allow you to use leverage. However, all this increases the risk of losing your money, so use trading tools carefully . .
What is a Trader?
a trader is a person who buys and sells financial assets (stocks, bonds, currencies, options, etc.) by following the evolution of prices in the markets in real time, with the aim of generating profits from a some capital.
They can specialize in certain assets or markets and in certain trading styles: binary options trader, commodity trader, scalper trader, day trader, etc.
Since the rise of the internet, independent traders who trade from home with their own money are on the rise, as access to the markets has become much easier.
You can read more about traders and how to become one in our article “ The Stock Exchange for Beginners ”
How much does a freelance trader earn?
In the question of what trading is, there is also another question, which is how much a trader can earn.
Calculating what an independent trader earns is almost impossible, considering that everyone will have different capital and a different style. .
However, an estimate can be made by taking into account the return on investment (ROI), the initial capital of the account and the costs related to trading.
If, for example, you are aiming for a return of 5% per month on an initial capital of 10,000 euros, this represents 500 euros per month or 6,000 euros per year. This percentage can vary up or down, depending on the type of operations and the trading costs, which can be commissions, spreads or swaps.
If you want to know more about these concepts, read the article ” The Trader’s Salary between Myth and Reality ”
As mentioned above, the profits made will depend on the style of the trader. Therefore, below we will examine the types of trading that exist.
Types de trading
There is no single method of trading, so we will briefly look at the following types of trading:
Scalping: consists of trading with a high frequency. In fact, transactions usually only last a few minutes or even seconds.
Day Trading: the trader opens and closes trades on the same day.
Swing Trading: This is a longer term trading style than the previous ones. Transactions are left open and generally last about ten days.
Position trading : it consists of taking long-term positions (several weeks or months)
On this account, you can test everything you learn in the various trading courses, in a virtual environment, before opening a real trading account. You can open a free demo account by clicking on the banner below:
Thanks to new technologies, trading is now accessible to everyone, from their living room and without the need for a university degree.
As you can see, the first two tools are practically already present in every household. They are part of everyday life.
It is very likely that you already have an Internet connection and that you have a computer, desktop or laptop, a tablet or a simple mobile phone.
The other three tools are linked: when you use a broker, they provide you with the trading account and the trading platform.
There are different types of accounts depending on your needs.
The broker (or broker)
The broker is the intermediary that allows you to place your orders on the market.
In addition, it will be important to know the spreads offered by the broker, the assets to be traded, the platform offered and the commissions.
As for the trading platform, this is the software that allows you to open and close positions, analyze the market using charts, use indicators for your strategies.