Introduction to Online Trading

The world has seen the growth of the financial market, especially with the influx of market investors looking for passive income.

Aside from securing financial futures, capital markets have a vital role in shaping one's economy. Countries that actively engage in financial markets bolster their global economic presence.

In this lesson, you'll learn the nitty-gritty of the financial market and the effective way to take advantage of it through online trading.

 

Lesson Highlights:

• The financial market is crucial in maintaining global economic operations 

• Online trading is where you buy and sell financial securities in a financial market with the hope of high returns.  

• When you trade forex, you take advantage of the fluctuation of the currency pair. Currency pairs have three categories: major, minor, and exotic.  

• Cryptocurrency is not susceptible to unlawful practices. To battle that, crypto trading uses blockchain technology to record transactions and uphold market integrity.  

• Stock trading is buying and selling a share of a publicly traded company at an optimal and profitable price.  

Definition of Financial Markets

The smooth operation of the capitalist economies is also attributed to the growth of the financial markets worldwide.

The emergence of financial markets gives investors and financial institutions an avenue to invest and raise their capital. Once they do so, they participate in the global economic and security exchanges, bolstering the capitalist society.

But what is a financial market in the most basic form?

The financial market represents any marketplace where asset trading happens. This includes assets like foreign exchange (forex), cryptocurrency, stock, and commodities.

What Is Online Trading?

Without the financial market, trading financial instruments wouldn't be possible. As mentioned in this lesson, the financial market is the perfect avenue to access and trade financial products online. 

Traditionally, financial trading takes time to execute and get profit from the market. However, with the emergence of technology and digital space, trading has changed to a more accessible and convenient landscape.  

With online trading, investors across the globe can access the financial market with only a mere device and an internet connection. With tools like automated orders, trading signals, and even robot traders, it's even made possible for you to do your daily life while participating in the market. 

Three Common Financial Markets

When you're in the financial market, there are several markets you can access to grow your investment by trading financial securities.

 

1. Forex Market

The foreign exchange (forex) market is a decentralized digital place to buy, sell, and hedge a currency pair. Here, you take advantage of the exchange rate fluctuation between a pair.

The forex market is the most liquid and volatile among all the financial markets because of the growing number of market participants. This liquidity and volatility make it an ideal market for day traders because they can have high returns within a few minutes.

Here is the essential forex information you should know:

• Individual investors or traders are not only the main participants in the forex market. Here, you trade forex with countries' central banks, financial institutions, and other businesses.  

• Forex trading means you trade a currency pair. This may include majors (EUR/USD), minors (EUR/GPB), and exotics (USD/PLN).  

• Forex trading is highly volatile because of its liquid nature, subjecting traders to potentially high returns and risks. 

• Unlike other financial markets, the forex market operates around the clock over the weekdays.  
  
   

2. Cryptocurrency Market

The financial world has seen the market craze of digital coins, popularly known as cryptocurrency.

Like the forex market, cryptocurrency markets are decentralized; they're free from any control from the government or central authority. However, that doesn't mean your crypto is floating around nowhere.

When you trade crypto, your transaction is recorded on blockchain technology. This network ensures the transparency of every crypto transaction. This battles the unsecured nature of digital space, where people perceive it as subject to fraud, censorship, or manipulation.

Here is the common stuff you should know when you trade crypto:

• Trading crypto is faster and cheaper than most financial markets. However, it is not susceptible to criminal activities.  

• The most traded crypto coins are Bitcoin and Ethereum, while the popular crypto exchange platform for cryptocurrencies is Binance.  

• Two main classifications of crypto pairs are crypto-crypto (ETH/BTC) and crypto-fiat (ETH/USD). 
  
   

  
   

3. Stock Market

The stock market is the most common market for both traditional and online traders. Also, the stock market is being used by companies to raise their capital by having investors trade a share of their company.

Like in forex, you take advantage of the stock's fluctuating price. Say you buy a share of stock at a lower price and sell it once the price rises; then you can say that you profit from your share.

However, the stock market is not as liquid as the other markets. Stock trading often experiences a lower float, wherein fewer shares are currency traded.

Want to trade stocks? Here are the facts you need to be aware of before entering the market:

• The stock market is currently more than 400 years old now.  

• Historically, September is the worst month to trade stocks. Meanwhile, you can expect high returns during October because of high volatility. 

• Stock trading hours depend heavily on their respective stock exchange. Unlike forex markets, you can't expect stock markets to operate around the clock.  

In this lesson, you've walked through the concept of the financial market and the effective way to use it for investment and passive income. For the next lessons, you'll learn the ins and outs of the foreign exchange market.