Becoming an online trader is something that a lot of people dream about. On the face of it, it offers a great lifestyle: making money from the comfort of a laptop computer without having to go in to work every single day is something that many people would like to do. There’s also the potential for high returns, and the glamorization of the profession in movies and TV shows has certainly added to this.
But the reality can in some cases be very different. Trading is difficult, and there’s a real risk of loss – especially for those traders who are new to the profession and aren’t quite sure where to begin. That’s why techniques and strategies are essential components of a good trader’s performance. Here are three of the main ways in which traders who want to hit the big time can give themselves the best possible chance of success.
Leverage and margins
In the modern trading environment, one of the main tools that experienced traders use to make the most of their performance is leverage. At its simplest, leverage is simply a form of debt that allows traders to borrow the capital needed to push up the value of their investment. In practice, it means that you can place a relatively low amount down as a deposit but gain – or lose – much more once the trade is completed.
In practice, the main way to access leveraged trading products is to head over to a broker that offers CFDs, or contracts for difference. These products are derivatives rather than actual trading products, so they track the underlying trends in the market. For example, buying Facebook CFD stock doesn’t give you ownership of a portion of Facebook, but the experience is otherwise largely the same. This allows for easier access to the market, but it also allows you to access leverage – and if you put in the time and effort to learn how it works, you can in theory take full advantage of this to magnify your profits.
Order execution tools
Order execution tools are essential parts of a trader’s arsenal, as they allow the trader to stipulate all sorts of different conditions. The simplest order execution tool is the market order that, when executed, opens a trade at the exact, current market level – with no added extras. But more complex tools exist as well. The stop loss, for example, allows a trader to specify a point at which the trade should automatically close if the amount lost is too high.
The main advantage of order execution tools is that they allow for convenience. By setting a stop loss, for example, a trader doesn’t have to watch market performance all day or be on hand to close any badly performing trades. These tools also force the trader to think about strategy: setting a stop loss requires thought about how much the trader can afford to lose and consideration of how historic data may repeat itself, which are essential questions to be asking.
Many of these tools also prevent the sort of decision-making habits than can cripple a trading career. By setting a trade, walking away and letting your rationally chosen stop loss do the protection work, you won’t be tempted to over-monitor your trade and make rash, emotion-based decisions – such as pulling out as soon as the market turns against you.
A sense of community
Finally, if you’re a new trader, it’s definitely worth joining a community of other traders who can share their expertise and tips. Trading might be a legitimate business, but it’s not the sort of business that requires direct competition with peers. For that reason, sharing your trading tips is something that doesn’t have the potential to cause you direct loss. Instead, it’s something that can simply boost your credentials within the trading community and allow you to benefit from reciprocated tips further down the line. It’s possible to discuss online trading in the forum of various trading product and community sites, and it’s especially worth doing if you’re a newbie who requires some assistance with definitions, concepts and more.
Just like so many other aspects of the modern world, trading is something that has been revolutionized by the arrival of the internet. But although it might seem on the face of it like a convenient and easy career, it’s really not – and that’s where techniques like these come in. From using leverage to your advantage to getting to grips with order execution tools, there are plenty of trading techniques out there to choose from – and there’s one that will be right for you and your portfolio.