Many people enter the stock market without realizing how many types of stock trading exist. Each type of stock trading involves varying levels of risk and trade-offs. It is important that you educate yourself and determine what is best for you.
Before you make your first trade, it is wise to discuss your plans with others. Speak with the investors among your friends and family; ask what has worked, and what has not. During these conversations, be sure to keep in mind that what worked for them might not work for you. It is also a good idea to speak with professional investors if given the opportunity.
Regardless of which type of trading you will start off with, be prepared to work and keep your wits about you and take a risk once in a while. Stock trading is not about avoiding risk; it is managing risk. Trading types that associated with higher risk include Day trading, Options Trading, and Forex trading.
Day Trading
Day Trading is a fast-paced type of stock trading. It has thought as a more exciting and potentially rewarding stock trading types; however, the trade-off is that it can be one of the riskiest. Moreover, because of the risks associated with day trading, it is recommended only for highly knowledgeable veteran traders.
Day traders—also called active traders repeatedly purchase stock and sell it the same day; rarely do day traders hold a stock overnight. Day traders are looking to take advantage of daily and hourly movements of stocks of high liquidity. Companies such as eSignal offer charting software for day traders, which allows them to keep track of real-time changes.
Options Trading
Options trading is an advanced type of stock trading that even numerous professional traders have difficulty understanding. It is a good practice to enlist the services of a broker when executing options because of its complexity.
Essentially, options give an investor the right to purchase or sell a particular stock at some point in the future. There are two options opportunities—calls and puts. When a buyer chooses to purchase call options, they believe the value of the stock will increase, likewise for selling puts. If a trader is selling calls, and buying puts, they believe the stock’s price will drop in value.
Forex Trading
Foreign exchange trading—forex or FX for short—is rapidly becoming one of the most popular methods of trading in the stock industry. The crux of forex trading is simply trading one currency for another and hoping that its value will rise.
Forex trading is wildly popular because trades can occur 24 hours a day from the time the Australian markets open on Monday and markets in New York City close on Friday. Forex has a higher risk associated with it because the currency market can be volatile and change quickly.
Conclusion
With all its various options, stock trading can easily confuse even the smartest of potential traders. The key to finding success in stock trading is a willingness to do your due diligence on a regular—if not daily basis and research. Books that discuss the art of investing are readily available (Savvy Scot writer Pauline discussed four such books).
So, armed with nothing more than your wits and knowledge gleaned from investors, books, and other media, you will soon be ready to tackle the stock market and make some money.
Trading in financial markets remains a gamble for he who doesn’t observe the market well. There are many elements at play in the trade-game. We did a video covering the Psychological trading techniques, how psychology plays a key role in trading.
As a trader, I can say that the key determinants of a successful trader includes ‘patience’ and the ability to get out of the markets (profit-booking, stop-loss), and this all depends on psychology.