To understand the concept of trading it is important to notice the difference between traditional trading and online trading. Here is a simple explanation:
Trading in general
Trading in general, is a way to build wealth by investing in stocks or buying shares of a company, trading in commodities or even currencies. The goal is clear; you want return for your investment. This means that, when the trade is successful, you expect to make profit over time.
Traditional trading is well known, the trader buys shares/stocks from a company and could sell these in the future where it is expected that they will be worth more. The trader can only make profit if those shares will, in time, have a higher value. Often a large capital is needed to buy those stocks and it can take a lot of time to actually see results. Therefore it is only attractive for large amounts to invest, upon which you receive a return every year. Hence, traditional trading is considered to be more long term oriented.
Now with online trading on the other hand, it is possible to trade stocks, commodities and currencies more quickly and make returns much faster than with traditional trading. It offers a more flexible way of investing.
One of the major benefits of online trading is the possibility to make profit from an increase AND decrease of the asset’s price. We will explain this in the following chapter. Furthermore online trading does not require you to have large sums of money and capital to get started.
Online trading is often referred as CFD trading (Contract for Difference). Throughout this guide we will explain, how CFD trading works and what the advantages and disadvantages are for this particular form of trading.