Online trading is the act of buying and selling financial instruments via an online trading platform on your computer or mobile app. There are many brokers which offer online trading platforms these days.
Choosing the best trading platform for you is the first step to trading online. These platforms act as a form of communication between the broker and you, the trader. You can trade across a range of forex, indices, commodities, bonds and shares. Once you place your trade, it will be executed by the platform.
Is online trading the same as investing?
Online trading is not the same as investing, even though they share similarities. Investing focuses on the longer term while trading focuses more on the short term. With investing, the aim is to generate profits over an extended period of time using a buy and hold approach. This is usually done using a portfolio of stocks, bonds and other financial assets. Many financial institutions and professionals can invest your money for you.
With online trading, you could open a trading account online and place trades yourself. Online trading involves taking advantage of short-term price divergences in the financial markets. Both approaches carry some level of risk to your capital, but trading can be more prone to short term price fluctuations in the markets. Such fluctuations could have a lesser impact in longer term investments. But it can take longer for investors to see returns.
High risk can mean higher profits but your losses could also be higher if prices move against you.
What’s the difference between CFD trading and spread betting?
The main difference between CFD trading and spread betting is the way they are treated for tax. Spread betting is only available in the UK and, currently, any profits are free from capital gains tax (CGT). In comparison, CFD trading is liable for CGT. Both are currently exempt from stamp duty in the UK. CFD trading is offered in many countries globally.
Spread betting and CFD trading are available online. The trading process itself is very similar. When you spread bet or trade CFDs, you can place trades on rising as well as falling market prices. You can take a position on hundreds of indices, shares, commodities and forex pairs.
Both are a form of leveraged trading. This means you can place a spread bet or CFD trade by depositing just a percentage of the full value of your trade amount. In comparison, when trading shares for instance, you would have to deposit the full value of your shares to place your trade.
What should I look for in a trading platform?
You should look for reliability, safety and ease of use in a trading platform. As market situations can change suddenly, the platform must be reliable and efficient. It should provide real-time pricing data so you know all prices are accurate. Features like single-click trading can make it easier for you to place trades. You should also bear in mind the platform’s online security. The broker should make it clear how they will keep your money and information secure. Finally, the platform’s interface should be user-friendly. It is useful to have easy access to charts, historical data, as well as different order types.
How can I minimise risk?
You can minimise risk by doing your research thoroughly and planning ahead before you place your trades. A good trader should consider how much they are willing to lose when buying and selling. Stop-loss and take-profit orders can both help with this. A stop-loss order can help limit losses by closing out a trade at a pre-set price if the market moves against you. A take-profit order will close out a trade at a more profitable price than the price at which you opened your position.