Table of Contents
Online trading is trading over the Internet, which means exchanging one instrument for another. It is usually understood as an exchange of goods for money, i.e. buying a commodity, currency, etc. Associated with trading are investment platforms that facilitate trading, allowing you to easily and quickly purchase financial instruments.
Online trading – what is it?
Until recently, investments were conducted only electronically between banks and financial institutions. This meant that trading in financial markets was closed to people outside these institutions. However, with the development of the Internet, any person who wanted to engage in trading could do so online.
Basically anything can be traded over the Internet, including stocks, currencies, commodities, among others. Of all the markets, Forex is the largest. Online trading is an activity that is based on speculation, regarding the price changes of various investment instruments, such as the price of commodities and raw materials, stock prices, currency exchange rates or cryptocurrency rates (read also: Online stock market simulator).
Activity in financial markets can be divided according to various criteria. One is which market the investor wants to participate in, i.e. the choice of financial instrument. These can be shares of companies listed on a specific stock exchange. In such a situation, one speaks primarily of investing, not speculation. Investing in the stock market can be short, medium or long-term.
When investing in stocks, not only technical analysis will work, but also fundamental analysis, i.e. the study of the company’s capitalization and price/earnings ratio. If an investor chooses other financial instruments, he should change his investment strategy.
This is very interesting in the case of Forex trading. Forex is a foreign exchange trading market, and online trading involves buying the price of a certain currency pair and trying to sell it at a profit. In the forex market, the trader additionally has the opportunity to multiply his profits using leverage. This allows you to use short strategies in the market against the time horizon. This involves opening positions for one or several days. In the case of the first option, you can even talk about the so-called daytrading, which is a one-day investment that involves closing a specific position on the same day it was opened.
Online trading is associated with considerable risk, so before investing, a trader should familiarize himself with various investment strategies. The main difference between investment and speculation is whether during the decision the trader is guided by indicators supported by technical analysis, or whether he only tries to estimate the next candles of the price at a certain moment.
What are CFD contracts?
Short-term online trading, such as forex online trading, usually takes place with the help of financial instruments that CFDs, or contracts for difference. They are characterized by the fact that the trader does not become the owner of the asset, but only speculates on the rise or fall of its price. Instead, he gets access to leverage and short positions.
With leverage, you can maximize your profits in a short period of time, since it works on the principle of a multiplier. However, one must keep in mind that the multiplier also applies to losses. Therefore, CFD trading requires proper preparation.
You need to manage the risks inherent in trading well, gain knowledge about the market and stick to a predetermined discipline. This will help reduce the risk of loss. The investor should also be cautious and never invest more than he can lose. This will reduce the stress that is associated with investing, which in turn will have a positive effect on making rational decisions.
What is the forex market?
Forex is a market where currencies from all over the world can be traded. This means that any investor can exchange one type of money for another, at a specific price. In the Forex market, all transactions are made over the Internet, with the help of special investment platforms. It is enough for a trader to have a tablet, smartphone or computer to operate independently from anywhere in the world.
The Forex market is traded by independent and large entities, but also by individual investors. To trade Forex, you need to contact the broker of your choice and get access to the trading platform. Forex operates from Monday to Friday around the clock. World currencies such as the euro, the US dollar and the Japanese yen play the biggest role in the market.
What is an investment platform?
An investment platform, also called a trading or trading platform, is a tool without which a trader would not be able to trade in the financial markets. With it, a trader places orders, makes trades, analyzes charts, tests his strategies, and manages his investment portfolio.
A Forex or CFD trading platform is software designed for a computer or mobile devices in the form of a tablet or phone application, which is provided by brokers. The purpose of a trading platform is to connect the trader to the market and allow him to trade on a wide variety of financial instruments. Brokers, very often use common trading platforms, such as the MetaTrader 4 or 5 trading platform that we all know.
The choice of a trading platform is very important from the point of view of the trader, who expects it to work efficiently and quickly, and to meet all his requirements. The best trading platform will be a tool that will effectively help the trader in trading.
Why is choosing the right investment platform so important?
Every trader, especially beginners, must realize that with the help of an investment platform they can trade Forex and CFDs by accessing a wide variety of markets and financial instruments. For example, the investment platform from XTB can use a wide range of financial instruments, such as indices, commodities, stocks, cryptocurrencies and ETFs. Besides, investors can also buy stocks from all over the world or units of EFT funds. All this using a single trading platform.
A trading platform not only allows access to a wide range of instruments, but also gives the opportunity to use various functions, such as technical analysis tools. For beginners, a good trading platform will certainly make trading and making trades easier. Of course, by itself, the platform will not ensure success and will not bring profits. However, it is very helpful. A beginner can also take advantage of the educational section and the investing knowledge it contains. Of course, to begin with, the best solution is to use a free demo account. A trader can try his hand this way and test his trading abilities, as well as try out all the tools offered by the platform, without having to risk real money.
In order to trade in Forex and CFD markets, each trader must choose the best investment platform that will suit his individual needs and investment expectations. An inappropriately selected trading platform will be heavily cumbersome and can effectively discourage a trader from trading or simply not be helpful.
The best investment platform – how to choose?
Above all, a trading platform should be intuitive, so that even beginners can handle it without any problems. Choosing the right provider can be time-consuming. A person who intends to invest his money must be 100% sure that the chosen trading platform is right for him. The following are the most important factors to consider.
The priority in choosing a platform should always be safety. When entrusting it with his capital, an investor should check which financial authorities have provided the broker with a license to operate.
The top investment platforms will be regulated by FINRA and the SEC in the US. Other authorities include the FCA of the UK and ASIC of Australia. It is worth choosing a platform that is approved by the above authorities because:
- The trader’s capital will be kept in separate bank accounts. This means that the investment platform cannot use his money to finance its operations, as well as cover its own liabilities,
- Regulated brokers are obliged to comply with regulations that deal with money laundering. This means that all investors who use a certain platform will have to verify their identity, which will prevent crime,
- The investment platform will have its books audited, by the relevant license issuer. This in turn ensures a fair trading environment for all.
Online trading involves investors of varying sizes and investment interests. For example, while some simply want to buy stocks, others may be interested in trading options or futures. For this reason, investors need to check whether the provider they choose, offers the market they are interested in. The best investment platform offers:
- stocks and shares,
- Forex and commodities,
- mutual funds, index funds, ETFs,
It is worth checking whether the chosen trading platform offers a clear and simple pricing structure. If the pricing system is confusing and overly complicated, it can raise a lot of doubts and complications. The following are the basic fees that are charged when using an investment platform:
- Trading commission – this fee can be fixed or variable depending on the specific broker. There are also providers on the market that allow you to invest in the stock market without a commission,
- Spreads – long-term investors who intend to hold stocks for several years do not need to bother with spreads. They are crucial for short-term investors. A spread is the difference between the bid and ask price of a specific asset. In some cases, it is defined as a percentage,
- Transaction fees – many providers charge transaction fees when a trader deposits or withdraws funds. The broker may charge the trader a fixed rate or a percentage based on the amount of the deposit,
- Other fees, such as inactivity fee, margin fees, account fees.
Trading tools and features
If a trader is looking for simple asset trading software, he or she may not be too interested in the additional features. However, they should not be overlooked, as they can prove to be very helpful. They include:
- Fractional shares – having the ability to buy fractional shares is very in case the investor is a retail customer with a limited budget,
- Types of orders – no matter which platform a trader chooses, he or she will need to place an order to execute a position. Every investment platform will offer buy and sell orders, but there are other types of orders that a trader will want to use. The best investment platforms also offer take-profit and stop-loss orders. These are very helpful in managing investment risk,
- Copy trading – this will be a useful feature especially for those who are beginners. The basic form allows you to copy a trader 100% passively,
- MetaTrader 4 and 5 – experienced traders are certainly familiar with both investment platforms. These are external trading platforms that should be in the offer of a good broker. They offer many technical indicators, drawing tools, trade copying, real-time price quotes, mobile functionality, etc..,
- Alerts – changes in financial markets happen at a very fast pace. Therefore, an investor must be able to keep his hand on the pulse all the time. For this reason, it is worth choosing a broker that offers alerts. For example, some providers allow you to configure price alerts. These can be sent via email or the provider’s app
- Educational zone – the best brokers offer investment platforms with comprehensive educational facilities. This allows you to learn the principles of online trading without having to use other providers,
- User experience – people who are new to online trading should make sure they choose a broker that offers a seamless user experience. This is not usually a problem when using the service provider’s main website, but it can be when using the broker’s mobile application. If a trader is interested in mobile trading, he will have to enter buy and sell positions on a small screen. Therefore, it is important to check whether it is easy to navigate the application that the broker offers. This should include doing research, searching for assets, but also entering and withdrawing orders, etc.,
- Payment methods – online trading is not without fees. Before a trader can execute trades, he will have to transfer some funds to his account. For this reason, it is important to check which payment methods are accepted by the provider. Usually, you can transfer money from your own bank account without any problems. Some investment platforms take about 1-2 business days to do this, while others do it instantly. For this reason, consider using a platform that offers credit/debit cards, as in this case the payment appears in the investor’s accounts immediately,
- Customer service – the quality of customer service varies depending on the platform you choose. Some brokers allow you to get help via email or a help box on the website. Help from such platforms may come only after a few days, so it is better to avoid using them. It is better to choose trading platforms that offer real-time customer support. The best form of contact is live chat, although phone contact is also a good method of support. A trader should also check what days and what hours the customer support team works. In most cases, support is offered Monday through Friday.
Ranking of the best investment platforms
Beginners who are just getting started with trading should use the following ranking of the best investment platforms (read also: How to start investing in the stock market).
This broker has been operating since 2007 and was established in Israel. It is one of the most popular and secure brokers operating in the financial market. It is subject to reputable regulatory authorities. With the help of this platform, the investor will gain access to commodity and cryptocurrency exchanges, Forex and the stock market, as well as other securities.
The eToro investment platform has one downside. The commission on withdrawals is a fixed $5. However, it has additional features in the form of social and copy trading. This allows a novice investor to earn from the experience of others.
It has been operating since 2016 and comes from Belarus. The offer of this broker is based solely on CFDs, but the investor has more than 3,400 assets at his disposal. With this investment platform, you can’t complain about fees either. Capital.com does not charge commissions on deposits and withdrawals.
It operates under the supervision of the Cypriot financial supervisory institution CySEC, so you can use this broker’s platform in a safe way. They offer online trading based on CFDs, but on a modest number of assets.
Libertex does not charge spreads, however, and the entire cost of the transaction is enclosed in a commission. In this case, there is also no commission for deposits and withdrawals. There is a proprietary trading platform and MetaTrader 4, both of which offer extensive analytical tools.
This broker is also subject to supervision by the relevant financial regulators. It is a CFD-only broker that provides access to all types of exchanges. You can invest in more than 2,100 assets through it, which will be sufficient for beginners and intermediate traders.
Withdrawals and deposits are free, but the cost of trading in spreads ranges from favorable, to relatively expensive. The broker puts at your disposal a proprietary platform, which is equipped with a number of analytical tools that allow you to test various investment strategies.
The broker has been operating since 2002 and was established in Poland. It has its shares on the stock exchange, so investors have free insight into its financial statements. Using XTB Broker’s services is completely safe, as it is supervised by more than a dozen regulatory bodies.
The investment platform offers all major exchanges and assets in the form of CFDs. However, it is mid-range in price. There are many favorable spreads on the standard account, but many are also high. Deposits are free. Withdrawals, too, but above EUR 100. Transactions can be made using the broker’s proprietary platform, which provides quite a few analytical tools and is well intuitive. XTB also offers an extensive training section.
How to use the investment platform?
The following will outline the process of getting started with an investment platform. Step-by-step instructions will be provided on the best-rated trading platform, eToro.
Opening an account and submitting an ID
No matter which platform a trader chooses, he will have to start the process by opening an account. On the eToro platform, this can be done in just a few minutes. To do so, the investor must go to the eToro website and click “join now.” After that, the investor will be asked to enter personal information, namely name, surname, home address, nationality and date of birth, as well as email address and phone number.
Confirmation of identity
The eToro investment platform is regulated by CySEC, FCA and ASIC. Therefore, it is obliged to verify the identity of clients. To do so, you will need to send a legible copy of the following documents:
- A valid driver’s license or passport,
- A bank statement for the last 3 months or a utility bill.
Usually the platform will automatically accept the documents obtained, so the verification should be done immediately.
Deposit funds into the account
The investor can choose from several payment methods, including:
- credit cards,
- debit cards,
- bank transfer,
- electronic payments, i.e. PayPal, Skrill, Neteller.
The eToro investment platform charges a currency conversion fee of 0.5% on all deposits that are in currencies other than the dollar. The minimum deposit is $200.
Reviewing the supported trading markets
Once a trader has finalized his eToro account, it’s time to search for the assets he wants to trade. If the trader knows which market interests him, he can simply search for it. To see which assets are supported, simply click the “trading markets” button. The asset classes that the trader can trade will then appear, such as stocks, cryptocurrencies, Forex, etc.
Placing an order
Once the trader knows what assets he wants to trade, he can place an order. For example, it could be bitcoin. In the “amount” field, enter your stake, for example, in the amount of $25. If the trader wants to set a stop loss and/or take profit order, he must go ahead and enter the target prices. When the trader is ready to place a commission-free order, he should click the “open trade” button.
There are various trading platforms available on the market. Therefore, it is worth taking many factors into account to choose the best one. Some focus solely on low fees, while others may look for a platform that offers a specific market or asset class.
Investment platform vs. broker
If an investor entrusts his money to the broker of his choice, he should know a thing or two about the broker. If he chooses a trusted, reputable and proven company, he need not worry about the safety of his funds.
Before making a decision, he should check whether a particular broker is an entity that is regulated in the country and has the proper licenses. This is a kind of safeguard in case of misunderstandings and the possibility to assert his rights, if necessary.
Having a head office with customer service in the country where the trading platform is offered is an added advantage. If you have any questions on technical topics that relate to the platform, you can construct yourself with customer service. This one will provide assistance and dispel any doubts.
The seniority of the company in the market may also be important. Service providers with many years of tradition and good standing are more likely to be chosen as more reliable and inspire more trust among users.
Related to the investment platform, and thus the service provider, is the offer. The investor should familiarize himself not only with the markets and financial instruments offered by the broker, but also with the fees that apply to the investment account. Customers are usually most interested in the proposed spread prices, as well as other costs, such as those related to the establishment and maintenance of the account.
It is good if the broker provides its clients with training and courses from the platform. There is never too much knowledge – the more, the better. Service providers should take care of users, by providing them with access to important information and comments from specialists.
Financial instruments, or the offer of online markets
Today, brokers offer a wide range of choices for different markets and financial instruments. For example, the broker Admiral Markets offers:
- foreign exchange markets, or Forex,
- contracts for difference for online commodity trading,
- contracts for difference on stocks,
- Contracts for difference on stock market indices (read more: How to invest in the stock market),
- contracts of difference on bonds, on funds,
- contracts of difference on cryptocurrencies.
These are the 7 main categories that Admiral Markets offers.
Forex Markets also offers a number of currency pairs, which are divided into 3 main groups:
- Forex Majros, which are the most popular currency pairs. These usually have the most favorable conditions and the cheapest spreads, such as EURUSD,
- Less popular currency pairs, e.g. EURPLN, EURJPY, GBPAUD, on which fewer people trade,
- Exotic currency pairs are those on which traders trade the least frequently, e.g. EURNOK.
Before a trader opens an account, a position, he should familiarize himself with the list of available financial instruments and the prices of possible commissions or spreads.
Online trading includes other popular instruments as well:
- oil CFD,
- gold CFD,
- CFD stocks of leading giants, i.e. such as Google or Facebook.
Online trading – advantages
Before online trading was available, traders relied on mail, telephone and fax to make their trades. They usually contacted their bank or broker to either buy or sell a specific instrument. Then they had to confirm all the details related to the transaction, i.e. the price, type, quantity and length of the transaction, etc. Online trading therefore has many advantages:
- Lower transaction costs, which are made not over the phone, but electronically,
- Faster and more convenient transactions,
- A much wider range of instruments from markets around the world,
- Availability of tools and indicators is huge and growing all the time,
- Editing indicators is intuitive and very easy,
- Great availability of additional help in the form of analysis, educational materials and trading courses.
Trading platforms offer tools that are enhanced, easy to use and provide much more opportunities in online trading. In addition, trading platforms give traders access to a wide range of Forex and CFDs. Such a wide range of order types is quite a convenience and gives many advantages, as the trader can carefully plan and prepare his trading plan.
Online trading for beginners – some tips
On the web you can find a lot of advice, tips and examples on how to trade in financial markets. It is not easy to combine all the advice, tips, knowledge and experience into one, but the following is the most important advice on how and where to start trading online.
Create a system and a trading plan
Every trader should start with a trading system and a plan that will help him understand when it is not worth opening positions and when it is a good time to do so. It is not worth starting with chaos in your head. It is important to write down your ideas, analysis and trading moves. Everyone learns best from mistakes.
Configure risk management settings
It’s worth understanding what risk management is and that it can save funds in a trading account. In the beginning, it is best to trade on a demo account, and only then trade with real money. Many beginning traders are unaware of the risks involved in online trading. Some people do not use the stop-loss function, which is very important, as it allows them to limit their risk when trading online.
Besides, very often investors take too high a risk by setting their leverage too high. Investors using lower leverage are much better prepared when the market changes direction and their investment system is not profitable. Smaller starts allow them to bounce back from a losing position faster and come out on top.
Proper adjustment of the trading system
Traders tend to change their trading styles and try different trading systems. This is especially true for beginners. However, it is important to realize that a strategy that works well for one trader may not necessarily be suitable for another.
When trading online, an investor should have answers to the following questions
What financial goals does he have, earning short-term as well as long-term,
How much time he can devote to online trading,
What level of risk he can afford,
The number of trading strategies he can implement and monitor,
What is his motivation for online trading.
Trading on a demo account
Investors do not have to take risks in real markets from the very beginning. They can try out different types of online trading ideas, analysis, indicators, methods or strategies using a free demo account. It allows them to get acquainted with financial markets and trade without the risk of losing real funds.
Forex capital management
Capital management helps to set the level of risk in advance, and develop effective online trading. However, proper capital management requires a trading plan. Such a plan, how to trade in the stock market, shows where to enter and exit a trade and how to manage the position and money.
Managing your own funds
The basis in online trading is to remember to minimize risk. A trader must always remember to properly select a position. For example, a trader may invest all his initial capital in one position, but he is not sure that it will bring him profits. It is better if he risks only 2% of his capital on one position. If the trade is not successful, the trader will lose only a small part of the funds.
Aggressive online trading is one of the biggest mistakes that investors make. If the losses are small, but one after another, it will lead to a significant depletion of capital. When choosing the right trading volume, you need to consider the volatility of the financial instrument.
Setting a stop loss
Setting this order with each transaction, in principle, has no disadvantages, but only benefits themselves. Driven by emotions, a trader often does not want to close a certain transaction despite the fact that it brings losses. Stop loss helps to overcome emotional involvement. It allows you to control the profit/risk ratio.
Awareness of leverage levels
Many Forex brokers allow traders to use leverage. On the one hand, it can bring many benefits, but its use can also lead to high losses. If a trader rationally sets the amount of position size and does not set the leverage too high, the risk should be minimized.
Keeping emotions in check
Investing in the stock market brings a lot of emotions, to is understandable. However, an investor should know how to keep emotions in check, as they can be bad for making rational decisions. By relying on his own intellect, an investor can reduce losses and achieve success.
Awareness and responsibility for one’s own performance
A trader must accept that his trades can produce both profits and losses. Thinking that every trade will succeed and bring profits can be severely disappointing. A person who realizes the risks knows that any outcome is possible and is prepared for it.
In the course of online trading, a trader, should interact with others to assess market sentiment on a regular basis. He can also learn to enjoy what he has. Greed is of little use.
Cut losses quickly
According to this tip, a trader should cut all trades resulting in losses, as well as those that will end in a loss according to his system. On the other hand, in the case of profitable trades, one should squeeze as much as possible out of them.
Starting the adventure of online trading does not require a beginner to have too much preparation, as well as many years of experience. It is enough for a novice trader to show a willingness to learn. It is also important to choose the right investment platform, which is worth spending a little more time on. This will enable the trader to react and make transactions quickly and efficiently. The best investment platform will not cause problems, charge excessive fees, and will work in an intuitive way.