Image: Trader searching for CFD Global’s online trading academy.
Financial activity, like any other, may be subjected to different approaches, based on personal preference and attitude. In order to learn it, one should possess theoretical knowledge, practical skills, and gain enough experience. These demands can be met only through zealous studying both from other theorists and practitioners, and from personal achievements and failures.
Trading in a Nutshell — a Brief Overview of the Ancient Concept
Trading is the base and predecessor of all financial activities. Being one of the oldest concepts, it had more than enough time to evolve and adapt to the development of mankind. Even in ancient times, before money was invented, people had been conducting cashless barter trades. Business has always been the force of global changes, spurring scientific and technological growth, geographical discoveries, as well as local and global conflicts.
The sheer number and diversity of trading types will surely baffle anyone. While the general question — “what is trading?” — has an equally plain answer — “a process of buying and selling something of value”, it’s actually not that simple. It takes substantial time and effort to learn at least a portion of its variants. And don’t forget about its everlasting development, so be ready to discover new subtypes of online trading or whatever concepts the technological progress would bring to the financial world.
Essential Vocabulary — Master the Terms, Understand the Concepts
Image: Business candle stick graph chart of stock market.
CFD Global believes that all traders should be at least familiar with numerous financial concepts. Hence comes the necessity to be fluent in relevant terms. There is a technical slang that may be incomprehensible to an “outsider”, and mastering this jargon is highly required. Below you will find several examples of various CFD trading terms along with their brief definitions.
Pip. This currency term is actually an abbreviation that stands for “price interest point” and denotes a unit of change of a currency pair exchange rate. In Forex markets, pips commonly equal one basis point, i.e. 0.01%, which amounts to one hundredth of a cent for dollar currencies.
- Candlesticks. In relation to finances, this term denotes one of the oldest types of trading charts. Similar to other types of graphs, it schematically shows the dynamics of a value, in this case — the price of an asset, in relation to a certain time period. However, a candlestick chart is required to comprise specific values, in particular — open and closing prices and the highest and the lowest prices during the relevant period.
- Trading strategy. This financial term may seem quite self-explanatory, however it involves almost endless variability. Well-thought trading strategies include development planning, taking into account potential risks and statistics of monitored markets. Naturally, it requires proper experience and skills, and is usually directly influenced by their quality.
- Spreads. Another essential term, with respect to CFD trading, a spread means a difference between the ask and bid prices. In a more general meaning, however, this term represents the difference between any two values depending on a specific financial field, such as bidding, options and others.
- Leverage. Leverage enables trading with a ratio in respect of transaction size and initial margin; consequently, this technique may result in increased gains in case of success or increased losses if it fails.
- Rollover. This is a complex term with a variety of meanings, joined by a similar feature. Regarding CFD trading, rollovers refer to a process of maintaining open positions of contracts after their expiration dates. This is done automatically at a contract’s rollover time or on a rollover date.
Image: Trader learning about CFD trading.
- CFD. This abbreviation stands for “contract for difference” — a specific type of contract that allows traders to take advantage of the changes in an asset’s price. When the contract is due, either the seller or the buyer has to pay the difference to the buyer; however, the opposite is also possible. The main advantage is that the contract parties do not have to own the relevant asset, they trade only its price. This feature greatly simplifies the process and results in a wider range of financial resources available for CFDs.
Eventually, you will surely come across many other notions while learning something new. Don’t be afraid, we have compiled an online glossary, so feel free to look them up at your convenience.
Market Tendencies — Adapt to Fluctuations
Image: Falling and rising markets.
Another important part of trade learning is getting an understanding of markets in order to choose them properly. Whatever market traders may pick, it will be their field of operation and working environment, so it is crucial to understand its nature and tendencies. Similar to the economic cycle, markets may be rising and falling. Skilled analysts are able to predict periods of growth and decline, as well as supposed peak and bottom prices with some level of confidence, and use this forecast to their advantage.
If the market is rising (this period is often called a “bull” market), that means that the prices of relevant assets are growing, and this process will probably continue for some time, judging by positive tendencies. An exemplary activity on this market is buying assets as early as possible, before prices grow further, and selling them as close to peak prices as possible.
As you may have already guessed, falling or “bear” markets are characterized by decreasing prices and an overall negative forecast. In these circumstances, traders may wait until prices approach their lowest value, and buy assets.
Risk Management through Portfolio Diversification
We keep reminding our clients that trading is a risky endeavour and must be taken seriously.
One of the methods to mitigate specific risks involves investing in several assets, such as different types of currencies or commodities, as an example for CFD trading. Bringing diversity to your financial portfolio is a wise strategic move that also requires substantial knowledge and experience.
Watch and Learn — Trading Education with CFD Global
Image: Trader using CFD Global’s Academy to improve skills and strategies.
In order to provide further learning possibilities to our clients, we developed online trading courses. Feel free to use our educational resources that cover a variety of topics: from shares and strategies to online trading platforms and other advanced tools.
Our educational videos are short yet informative; that’s why you may watch them whenever it would be convenient for you. Little steps towards personal growth are helpful for improving your trading skills, so why don’t you try the free courses and see for yourself?
Enhance Your Knowledge and Practise Your Skills
CFD Global believes in the power of knowledge, particularly in such a highly demanding field as CFD trading. That’s why we offer our customers free educational resources for learning and self-development, in addition to advanced trading platforms. While this article may have clarified some terms and concepts, there is always much to learn and master. In the age of rapid progress, useful information is an extremely powerful tool, especially in the field of finances. We hope that our video courses, as well as other educational resources, including this brief article, will be useful for any of you.
Sources: Investopedia.com; Accountingtools.com and Businessdictionary.com.