Online trading is the process of buying and selling currency pairs, stocks, commodities and digital currencies via a trading platform. Trading platforms are provided by financial brokerage companies that make money when traders use their platforms. The goal of online trading is to take advantage of price movements to make a profit. It is not different from our daily transactions, except that it takes place over the Internet.
Thanks to the widespread adoption of the internet globally driven by the build-out of fast 4G and 5G networks in many countries has made the financial markets very accessible. The concept of online trading has gained popularity in recent years as new traders join the industry. Most people are attracted to the markets because they can profit daily compared to other ventures and investment strategies.
Many traders have embraced online trading because of the low barriers to entry, unlike other investments that require significant cash outlays, such as trading stocks with a traditional broker. One can start trading online with minimal cash and trade various products, including foreign currencies, stocks, ETFs, bonds, digital currencies, Bitcoin, and many others as contracts for differences (CFDs). Traders can access and trade all these products online and take advantage of their price movements.
Of all the many assets that can be traded online, Forex trading is the most popular type of trading where investors trade currency pairs such as the US dollar against the euro. That is, exchanging one currency for another with the expectation that its value will rise against its peers and earn you a profit. The forex market is the largest financial market with a daily traded value of approximately 5 trillion dollars.
History of Online Trading
Before the advent of online trading, traders were forced to talk to a brokerage broker whom they would call and ask to make trades for them. Much of the trading information we have access to on our trading accounts were not readily available. Traders had to constantly call their brokers to get an idea of the price changes in a particular asset. Investors used to buy the newspaper to keep track of changes in the global financial markets relayed via fax and other slow communication methods.
However, the internet revolutionized the online trading industry, which has truly transformed over the past few years, making it possible for ordinary people to trade the markets. Nowadays, the amount of information we have access to, including the second by second changes in the price of an asset, used to be only accessible via mainframe computers worth millions of dollars.
Most popular amongst brokers, the MetaTrader 4 platform has the same advanced functions that were only available on a mainframe computer in the 1980s. Today’s online trading platforms allow traders to open, close and adjust their trades anytime and from anywhere in the world. Many advanced indicators can help one make the right trading decisions using technical analysis.
Today’s trading platforms allow traders to use powerful features such as a stop-loss order and limit orders for profit targets and trade entries. These tools can automatically get you into and out of a trade even when you are not physically at a computer or mobile device.
The internet, combined with the drop in computer and mobile device prices, has genuinely transformed the online trading industry. Nowadays, all an investor needs is a mobile device with a reliable internet connection to start trading.
There are minimal costs associated with trading the financial markets, making the Forex markets very accessible to most people. Most brokers now offer educational resources for beginner traders who don’t know much about the markets, making it easy for new traders to get started.
Most people across the globe can now access the global financial markets via online trading. The assets available for trading from most brokers include Forex pairs, digital currencies, stocks, futures, indices, gold, and oil trading. You can access the financial markets 24 hours, five days a week, except for Saturday and Sunday, when most markets are closed.
All you genuinely need is a computer or mobile device with an internet connection and some risk capital.
Laws & regulations in online trading
All types of online trading are subject to the law of supply and demand, including foreign exchange trading, contracts for differences (CFDs), digital currency trading, among others. The law of supply and demand states that if the supply of a commodity increases, its price will fall, and in the event of a supply shortage, its price will rise. This law underpins all the market activity since to buy a currency pair or other asset, somebody else has to sell it to you. Other factors that affect Forex prices, such as geopolitical events, economic releases, and government policies, usually affect the supply or demand for the affected currency. However, each currency pair is usually affected differently by such events.
How to trade online?
The basic principle behind online trading is to buy an asset at a low price and sell it at a higher price to make a profit. You can also sell an asset at a high price, repurchase it at a lower price in the future, and profit from the difference.
Trading with a Forex broker allows you to buy and sell different assets while incurring minimal costs; hence, you get to keep most of your profits. You can trade stocks, commodities, gold, Forex pairs and cryptocurrencies from a single trading account.