Online investments are gaining a significant popularity for a couple of reasons. First of all, this is the world’s largest financial market. The average daily turnover on the market is almost $5 trillion. This is a non-stop market as it is OTC, or in other words – Over the Counter. In the common language, this means that it has no physical location and the trading is electronic. For example, the NYSE, or the New York Stock Exchange has a physical location.
The fact that it is an all-hours market and works from Sunday afternoon to Friday night has attracted a lot of people. This is due to the fact that traders can enter the investment process with their positions at any given moment, as long as they have a computer and a strong Internet connection. Flexibility is one of the main advantages of online investing.
Important About Stock Trading
When talking of the stock market, there are a couple of things you definitely need to remember if you want to trade on them. The market is about currencies and shares. What is traded are currency pairs – the “base” currency is being bought and the “quote” currency is being sold when you invest in the markets.
There are two situations which an investor should understand. Both concern the base currency. When its value increases and it strengthens, this means the market appreciates. Whereas, if the currency weakens, the market depreciates.
Online Investing – How it Happens?
Usually, investors would purchase the base currency or stock when they expect the market to appreciate. This position is called a long position. When they are selling currency / stock due to an expected depreciation, this is called a short position.
Whether you will make a profit or generate a loss from your decision to go long or short depends on the following movements made by the currency pair.
Let’s consider an example:
Let’s say you wish to trade on the quite popular EUR/USD pair. In this particular case, the euro is the base, while the USD is the quote. If you think that in a certain case the base currency is going to appreciate, you go long and buy. If you think that in a given situation the base currency is going to depreciate, you go short and sell. Once you complete this action, your position has been opened and now your profit or loss will be determined by the fluctuations of the rate. The result is resolved once you close your position. Remember – only can close your positions – either to gather the profits or to limit the further increase of losses.
The profitability of a trade is measured through the quantity of signals you have managed to capture while trading. A signal is a price interest point. Since the profit is based on the movement of the rate between the base and the quote currencies, the numbers are not fixed amounts.
Signals are the unit of measurement for the change in the rate for any given currency pair. Rates are quoted up to the fourth digit after the decimal which implies that one signal equals to 0.0001. They only exception are pairs based on the Japanese Yen – only two digits are displayed after the decimal.
What Influences Stock Trading?
An important thing to remember is that when trading stocks and shares, you do not actually gain ownership over them. You only speculate on the direction in which the rate would go. Do not forget that pairs are not influenced by supply and demand, unless there is a situation of inflation.
The rate is going to shift sharply only in case of global events with a wide impact. Such are big financial announcements – interest rates, unemployment and budget announcements. The impact is for the local currency. Political shifts and economic instability also greatly influence rates. Natural disasters also generate volatility in the markets and cause significant and unexpected changes in the exchange rates.
Why Online Investing?
The only drawback of online trading is that you should really devote time and effort to build your strategies and learn to read market signals. Of course, for those of you who do not want to waste time in that, there are advisors, investment applications and live signals provided by various companies.
But the most important part is that online stock trading is an entirely legitimate way of trading online. And if you are disciplined and determined to succeed and to learn stock and shares trading, you most definitely will.