What is trading and how do you start?
Are you looking for a simple trading lesson for beginners? Then you’ve come to the right place. In this article I explain the basics of trading. You will learn the difference between trading and investing in this article.
👉 In addition, I will give you some general tips so that people in general achieve better results.
Furthermore, in this article I will give a brief overview of the different markets in which you can trade and explain what you need to start trading.
What is trading?
Trading means trading in English and this is what a trader does. For example, he buys back shares and tries to sell them again for a profit.
👉 A trader buys for a low price and sells for a higher price. The difference is the profit.
The price of, for example, a share falls or rises due to the supply and demand. It’s up to you to buy or sell at the right time.
By gaining a lot of experience, you will notice that at some point you will feel when to buy and sell.
In short, this is the art of trading.
What is the difference between trading and investing?
In recent years you have seen an increasingly clear difference between trading and investing. That difference did not really exist “in the past”. Online trading makes it possible for anyone to make (or lose) money quickly in a short time 😏.
The rise of trading has actually arisen due to the increased speed of the internet. This has created a type of investors that has started to form a whole new trend: the traders.
You may be wondering: what is the difference between a trader and an investor exactly? The difference between a trader and an investor is the term they trade. In general, an investor will be much more focused on the long term. He trades for a period of several weeks, months to years. This does not apply to a trader.
As a trader you mainly focus on the short term. A trader trades within seconds to a week. When you start trading, you are very active.
Trading: Short term, think of seconds to a maximum of a few weeks
Investing: Long term, think weeks to years
There is another difference between a trader and an investor. A trader is especially interested in the price and the price development of a share (or better: the asset). A trader does not really care which company he buys a position in, as the long-term performance of a stock is not important to him anyway.
What is important is how the price of a share develops.
Which markets can I trade in?
Above I have mainly talked about a share. The stock price of a company is an asset that you can trade in. I’ll use that example for a moment, because this example appeals the most to the imagination for most people.
The markets you can trade in are:
- Forex (foreign currency)
- Raw materials
To trade as a beginner you need a broker and a trading platform. You get access to the financial market through the broker.
In these markets, a trader actually buys the underlying product. That is sometimes attractive, but not always. When you conduct financial transactions, you generally have to pay transaction costs.
The more often you make a trade, the more often you have to pay transaction costs. That can be quite expensive, or as a trader says: it is at the expense of your return.
Traders and Derivatives
There are also derivatives of every financial product (an asset). These are called derivatives. Contracts for Differences are, for example, derivatives.
People like to trade in derivatives because you need less equity to make a decent return. In addition, people like to trade in derivatives, because the costs are often lower.
👉 However, keep in mind that trading derivatives is also more difficult because you don’t have the underlying product. Your losses can therefore also add up faster.
How much money do you need to start trading?
If you want to make money with trading, you naturally need a starting capital. It is difficult to say exactly how much money you will need. That also depends on the products in which you are going to trade. In practice, you can start trading with little money, while you can still make big profits.
That’s because nowadays you can use leverage. By using leverage you can already make nice profits with relatively little money. The reverse is of course also true: you can also lose your stake.
It is therefore important to carefully check what you are doing exactly. Never let others drive you crazy. There are two important lessons for beginner traders.
✅ First of all, never put all your money on a trade or a product. Spreading, spreading, spreading is the motto.
✅ Second, never trade with money you can’t lose. The returns can look so good, you can also lose your investment. If that applies to money that you can spare, then nothing is wrong. But if you can no longer pay your rent by trading, then you have a problem.
Trading for beginners: you need this to become a good trader
If you want to become a good trader, you must have nerves of steel in the first place. Trading is not easy.
👉 You will have to learn first. You may even make some losses in the start-up phase. If you immediately go into panic mode, it probably won’t work. A real trader knows he has to be patient.
👉 Second, you need a good laptop or phone, with a fast internet connection. Some traders trade within seconds. It is important that you receive the price information quickly. When you work with a slow internet connection, you can buy or sell just too late.
👉 Third, you need a good strategy. When you have a good strategy, you can make attractive profits. In addition, it is also a good idea for novice traders to practice beforehand.
👉 Fourth, you need a good broker. A broker is someone who stands between you and the financial markets. However, you must know in advance which assets you want to trade in. Only then can you choose a broker that offers the services that suit your needs.
Every beginning is difficult. It will not always be easy to get the hang of trading right away. Fortunately, there is a way to gain experience without running immediate financial risks. Most brokers offer you a demo account.
When you use a demo account, you can trade with fake money. What does that mean? This means that you can trade for free, you cannot of course have any winnings paid out, but that does not matter at the moment.
✅ When you trade with a demo account, you can at least get a taste of trading. It is also a good way to try out new strategies. This is the ideal way to trade as a beginner. You will see that if you practice a lot you can make money trading at some point.