How to Make Smart Trading Decisions

How to Make Smart Trading Decisions

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Successful traders have a keen understanding of the financial markets. These traders learned through trial and error how to dabble in the financial markets for optimal results. To get there, a strategic plan is needed. Overall, there are only two ways that markets can affect your potential profits: by rising or falling. Bullish markets are characterized by optimism and a risk-on approach to the underlying asset in question. This could be indices, commodities, stocks or currency pairs. Bearish markets are characterized by pessimism, and a risk-off approach to the underlying asset in question.

Ways to Succeed in Financial Markets

First of all, it’s important to understand the terms that are used in the financial markets. It’s impossible to trade and succeed if you don’t know certain terms such as stop loss, leverage, margin, pips, short positions, long positions, CFD trading, resistance and support levels, and so forth. And then, once you get into your stride you’re likely to come across a myriad of investment options. These include mutual funds, exchange traded funds, stocks, indices, commodities, currency pairs and the like. Successful traders know about things like deductions and tax credits, derivative trading options such as CFDs, and ways to mitigate losses by hedging on alternative financial assets.

Taking Your Trading Activity Online

If this seems like a dizzying proposition, it is. That’s precisely why a sound understanding of the financial markets is essential. Traders continue to shy away from conventional bricks and mortar trading at institutional brokers in favourof trading online. The comfort and convenience of trading from home, or on the go, trumps the hoops that traders have to jump through with fund managers and traditional brokerages.Nonetheless, it should be remembered that the same concepts apply. For example, education is paramount. There is no substitute for a keen understanding of financial terms, fundamental analysis, technical analysis, and the trading platforms.

Buy or Sell? Both Can Potentially Yield Profits on the Financial Markets

As a typical trader, you would buy an asset, commodity, currency pair or position on an index. Then, you would wait for the underlying asset to appreciate before realizing any financial gain on it. However, when you dabble in Contracts for Difference (CFDs) no ownership of the underlying asset needs to take place. CFDs are derivative instruments, and only the price movement matters – no ownership of the asset is necessary. In this vein, traders tend to take one of two positions: a short position (with expectations of a price for in the future) or a long position (expectations of a price rise in the future). When you short an asset, you sell it, and when you go long on an asset, you buy it.

Leverage and Margin – Two Key Concepts That Successful Traders Live By

If you’re new to online trading, you know that you don’t necessarily have all the cash that is needed to take out a position that will generate the deal sizes you’re looking for. Enter leverage. Leverage is a powerful trading tool that allows you to open extremely large positions with limited money down. For example, you could trade up to 50 times the value of your initial investment, or as much as 400 times the value of your initial investment. How does it work? You begin by picking a credible online brokerage.

Then, when you have selected your preferred tradable asset, place your investment amount and enjoy the full power of leveraged trading. Remember: leverage works for you when your trades end in your favor, but it can also work against you when your trades finish against you. Margin refers to the amount of money that you invest in the trade, and the amount of the trade that is covered by the brokerage. According to federal regulations, clients can borrow up to 50% of the total cost of a trade. This is simply a way to take out a much bigger position than you could otherwise afford.