Trading 101: How To Start Trading?

Why should you trade?

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For most of you that might sound like a silly question. After all, it’s hard to argue with the claim that in the quest for financial independence, trading and investing in financial markets are among the most intriguing opportunities. The world of trading is fascinating—the sky seems to be the limit when you encounter all the huge success stories, the Apples, Facebooks, Googles, Teslas on one side, and the great investors and traders like Warren Buffett, Paul Tudor Jones, David Tepper, George Soros, Benjamin Graham on the other side. Also, the technological advance brought this world much closer to the Average Joe, with prompt and cheap online access to all imaginable markets and assets.

That said, despite the great premise, the wild dreams of wannabe traders coupled with the unlimited realm of opportunities often leads to disasters. Without the intent of scaring off anyone, the reality is that a large number of new traders lose some, or all of their initial capital.

How could you prevent that? Well, the good news is that by trying to get informed and educate yourself, you already took one of the most important steps towards success. Blindly jumping in the market and start “day-trading” on “margin” (we will get to these, don’t worry…) to chase unrealistic gains accounts for most of the horror stories.  Before you leave, we have more good news— by following a few simple rules, you will remain in control all the way, without taking on unnecessary risks or committing some of the all-too-common-rookie-mistakes.

That’s where we step in. In our Trading 101 course, we will go through all the steps that you need to take to trade consciously and successfully. First, we ask you to be somewhat patient and realize that, in order to get closer to achieving your goals through trading, you need to learn some basic skills and acquire crucial knowledge.

You should be looking at trading as any other business that you get into; you have to put in some time and energy in order to get the wanted results. But remember, the possible reward is extraordinary—leveraging your knowledge to manage your capital is the single best way to increase your wealth.

Learning The Language Of Trading

If you look at trading as a business, at first you might think that it’s done in a language of its own. The financial jargon is vast, and often confusing for outsiders. Traders and analysts with very different levels of knowledge use words and phrases in all kinds of ways, sometimes far away from the “genuine” meaning.

What’s worse, there are those who try to hide behind the financial mumbo-jumbo to mask their inexperience, lack of expertise, or use it to profit from the insatiable hunger of the public for news and “expert opinions”. The best way to remain focused in this jungle is to learn the basics, and form your own opinion about the unfolding events and the movements in the market.

It’s a good idea to find reliable sources of information both for educational materials and up-to-date news. Getting informed about the basics of economics and financial trends will also help you in understanding the market and the intentions of the different players.

To help you, we will provide you with a compact dictionary that will kick-start your trading career, and shorten your learning curve. We will also continue giving you all the necessary information about the newest developments in the financial world.

Finding The Trader In You

When you already speak the language of trading on a basic level, you should still answer some questions before you place your first order on the market. If you don’t, you will, most likely, find them out the hard way. Here are some of the most crucial ones:

  • What are your goals with trading?
  • How much capital would you like to trade with?
  • How does trading fit in your investment portfolio?
  • How much time would you like to dedicate to trading?
  • What assets do you want to trade with?
  • What analysis methods would you like to use?
  • What strategy (or strategies) is suitable for your goals?

Of course, these questions are not independent of each other. The time that you are able to dedicate to trading will largely determine the strategies that you might use, while the amount of capital might limit the type of assets that you are able to trade with, and so on.

The idea is to be conscious about your trading goals and to know what you are looking for, even if some of the questions might seem premature, and your answers might be proven wrong later. Don’t worry, you will have several opportunities to refine your approach as you gain experience.

Choosing A Broker

If you have answered the questions, and you already have a pretty good idea of the path you prefer, the next step is to find the perfect partner for you to trade with. In practice, this means finding a good broker (or brokers) and a matching trading platform. As easy as it sounds, there are several filters that you should use before choosing your partner in trading.

The decision is not for eternity too: it’s good to stay flexible and switch brokers anytime in your trading career. This, of course, implies that you should keep an eye on the market for new trends and opportunities, but guess what; we will be here to help with that as well.

So, what are the factors to weigh and what are filters that you should apply?

  • Reputation and regulatory background
  • The available markets, assets, and account options
  • The available trading platforms and tools
  • Commissions and fees, hidden costs
  • Customer support, extra services

Some of these might seem obvious, but there are more to them than you would first think. Reputation might seem boring for example, but that’s only true until there is an extreme situation like the 2008 crisis or the infamous Swiss Franc event in 2015. Even commissions and fees can have different effects on different strategies, making a certain broker expensive for one trader and a bargain for another.

Naturally, your weights will be somewhat subjective, but in our coming posts, we will show you all the must-haves and the “strictly-no-no”-s of the business.

Practice, Practice, Practice…

After you answered the basic questions and found the perfect broker, now you are ready to trade, right? Unfortunately, the answer is most likely no, at least not with real capital. The wise decision for most traders is to start your journey with a demo, or practice account. Most brokers offer those to new traders, while also providing a great opportunity to further evaluate their services. Demo accounts are perfect to get to know a trading platform, the order types, your strategies in practice, and to face all the small decisions that are inherent in trading.

Having said all this, the idea of opening a “real” account together with a demo account is not entirely wrong. An account with a smaller amount of capital could uncover some problems with the broker, the funding process, hidden costs, and so on. It could also give you a glimpse of what real trading looks like—the thrill of facing real profits or losses, and how will you react to those.

After you reach a level of experience, you should also go back and revisit several of the questions that you answered before, as now you know much more of financial markets and, even more importantly, yourself.

The Real Thing: Dealing With Profits, Risks, And Losses

Are you feeling comfortable, or even bored, trading with paper money? Entering different types of orders and sticking to the rules of your strategies seems easy? Then it’s time to finally begin trading with real money. A whole new world will open up for you; sometimes it will be scary, sometimes it will be rewarding, but it will most certainly different from paper trading. On a side note, this doesn’t mean you should forget your demo account, though; you can still use it to test new methods and strategies, risk-free!

Before you start trading, you have to remember that risk is a natural part of this business, and that you will inevitably have losing trades. If you have sound strategies, and proper risk management, those won’t cause you much trouble, and most of the times you will be dealing with winning trades and looking for new opportunities.

The effect of compounded returns, the flexibility of trading, and the additional expertise that you will be able to harness in your business and personal life will be well worth your efforts. We urge you to join us on this exciting trip and dive into the art of trading using our comprehensive guide.

Continue with the next lesson: What Can You Achieve With Trading?

Images from Shutterstock.

Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.