Online trading is
trading in financial markets via the Internet. Previously, all trading was held in the exchange
building in person or by phone. Now, every deal is concluded with the help of
an electronic terminal.
How Does Online Trading Work?
Internet-trading
allows you to make deals on the financial market within seconds or
even less. However, one thing still remains the same with pre-online times: a
private trader still needs a broker in order to trade. A broker provides a
trader with a trading terminal – the software that a trader uses to
conduct his business.
It goes like this:
- A trader decides to make a deal (for example,
to purchase 100 shares of Apple).
- He finds this asset (Apples' shares) in his
trading platform chooses the quantity (100 pieces or 1 lot) and places an
order to buy.
- The broker gets a request from a trader and starts executing the order. He needs to find a counterparty – another
trader, who is willing to buy the same asset for the same price.
- The broker looks for a counterparty on the stock exchange. When the search is completed, the deal is made.
Nowadays, the trading
platform does all the work to find a counterparty and clinch a deal. The
trading process is fully automatic; that is why the time needed to make a deal
is no more than a couple of seconds.
But it wasn’t always like this. In the early days, the whole process took a lot of time even though the chain “trader – broker – stock exchange – broker – trader” was the same. The trader used to give a call to his broker and ask to open the deal, and the broker would personally try to find a counterparty on the stock exchange.
Types of
Assets You Can Trade Online
There are several types of assets that
you can use in online trading. Some of them are categorized as “classic”, and
they have been sold for hundreds of years now. Others appeared after the spread
of Internet trading. Let’s take a closer look at each category of assets.
Stocks
Stock market shares are one of the
oldest types of assets. A stock share is a specific share of a big company that
is traded publicly. There are two possible roles for you when making deals in
the stock market: the speculator and the investor.
Cryptocurrencies
Cryptocurrency is the newest asset in
contemporary financial markets. But what is it? Let’s dig deeper.
Cryptocurrency is a digital asset
created by a complex program code. Bitcoin was the first and the most popular
cryptocurrency, and many more were created from this basis. Today, there are
more than 2000 different cryptocurrencies and the number is still growing.
Currencies
Currency is the main asset for Forex
trading. Currencies are commonly used in currency pairs, such as EUR/USD,
GBP/USD, etc. Trading is conducted in one currency relative to another.
However, for everyone’s convenience, currencies in a currency pair do not
switch places. For example, if a trader wants to buy USD for GBP, he should
open a deal to sell GBP/USD or “sell GBP/USD”.
Metals
Precious and non-ferrous metals are
also a quite popular Forex asset. Traders mostly choose gold and silver; many
brokers also allow trading platinum on their trading system. It is possible to
make deals to buy or sell copper, nickel, aluminium and other precious metals.
However, not all brokers give access to such assets.
Indices
Indices (indexes) – one more tool that
is used on the stock market. The index is formed by a certain number of shares,
which are generally combined into one category. For example, the Nasdaq 100
index consists of shares from the 100 biggest companies in the high-tech
industry, which are traded on Nasdaq.
Agriculture
Agriculture category includes assets
such as wheat, soybeans, beans, etc. These are not the most popular assets, as
the price does not change often like exchange rates for gold do, for example.
However, the fundamental factors that affect agriculture rates are clearer and
easier than when dealing with currencies or gold. That is why these assets have
their own permanent audience.
Oil and Gas
Oil and gas are the assets of the еру
energy resources category. It is as popular a Forex asset like gold, second
only to general currency pairs.
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