21 lines
3.6 KiB
Plaintext
21 lines
3.6 KiB
Plaintext
Chapter 5: Ways to Trade
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T
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he main method for
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investing in the forex market, therefore, remains the classic forex market. When you operate on the forex market, you are actually buying and selling currencies.
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However, over the years, other financial instruments have been introduced to invest in forex and currencies indices on the forex exchange. We are talking about CFD (contract for difference) and binary options. The main feature of these two financial instruments is the following: when you use them to invest in forex, you will not actually own the lots you are investing in.
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That said, for those who do not intend to trade online, it could make little sense. Let's try to clarify. Both CFDs and binary options are contracts between investors and brokers. It's not like the classic forex market, where traders buy and sell among themselves. In CFDs and binary options, the asset movement (in this case the buying and selling of currencies) does not take place.
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CFDs and binary options are used to speculate on the performance of the value of equity securities. If the trader's forecast is correct, the operation will lead to a profit; vice versa, if the trader's prediction is wrong, the operation will lead to a loss. So, the mode of operation is similar to the stock market: if I invest on the upside, whether I do it with CFDs or actually buy currencies, I only earn money if the value increases.
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As we explained in the previous paragraphs, CFDs are also derivative instruments, so they are used to speculate on the performance of asset values. This means that when you buy and sell CFDs, you will never own the asset traded (as opposed to classic forex trading).
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Moreover, as with binary options, with CFDs it is possible to trade on:
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Equity securities
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Equity indices
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Forex currencies pairs
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Commodities
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ETF
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Leverage plays an important role in CFD trading: through leverage, we can literally multiply the value of our investment. Just to give an example, if you use a lever of 1: 100 and invest € 100, thanks to this lever you can move well € 10,000 (using only your hundred!). All this is made possible thanks to the leverage, which is a sort of "loan" (if we can define it) by the broker, thanks to which you can invest more money than you really have.
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But if we talk about eToro, we can't avoid talking about Social Trading. For those who do not know, eToro was the first broker to have introduced Social Trading in CFDs. Thanks to Social trading it is possible to invest by copying (automatically) the operations carried out by the other traders registered on the eToro platform. All you need is a couple of clicks to find the traders to follow, choose the amount to invest, and you're done. In this way, even novice traders can exploit the knowledge and experience of professional traders, copying their operations.
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The online trading strategies are based on the study of mathematical and graphic analysis that can suggest the trader the best moment to buy and sell. As we have seen today, it is possible to invest in the stock market thanks to online trading, choosing between trading binary options and trading with the forex market.
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Precise right away that there is no suitable trading strategy for all traders, but there are different trading strategies, based on traders and their style of trading. Therefore, it is possible to customize different online trading strategies on the basis of their trading objectives, their intellectual and psychological abilities.
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We also recommend using 2 proven techniques not to turn winnings into losses:
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stop loss: it establishes a maximum loss that you are willing to suffer;
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take profit: you place a dynamic exit level that rises slowly. |