Trading for beginners: making a smooth start

If I were to ask you, "What comes to your mind when you hear the word 'trading'?" What would you say? For most people, trading seems like an activity reserved for the wealthy and experienced professionals.

Most people actually think they need a large amount of capital to start trading when in reality, what they need most is knowledge. If you’re a beginner looking to start trading, it may seem overwhelming and confusing. But don't worry, in this blog, we'll provide some helpful tips for a smooth start in trading.

Trading for beginners: the basics

So what is trading? Some people think that trading is some kind of magical process that can help them make tons of money without putting in any effort while others think that it's illegal or unethical. However, trading, in its simplest form, is simply buying and selling assets like stocks, currencies, and commodities in order to make a gain.

Traders buy assets when they believe that their value will increase in the future and sell them when they believe their value will decrease. Trading can be done in a variety of financial markets including the stock market, the foreign exchange market (forex), and the commodity market.

Traders can use various trading strategies and techniques to make gains including day trading, swing trading, and trend following. As a trading beginner, all you need is a reliable internet connection and an installed trading platform like MetaTrader 4 and a strong desire to learn and grow in the world of trading.

List of terms a trader should know

1. CFD trading: CFD stands for Contract for Difference. It is a popular form of trading that allows traders to speculate on the price movements of various financial instruments without owning the underlying asset. CFDs offer flexibility, as traders could benefit from both rising and falling markets.
2. Fundamental and technical analysis: Fundamental analysis involves evaluating the intrinsic value of an asset by analysing economic, financial, and qualitative factors. It includes studying company financials, industry trends, and market conditions. Technical analysis, on the other hand, focuses on analysing historical price and volume data to identify patterns and trends that can help predict future price movements.
3. Trading chart: A trading chart is a graphical representation of an asset's price movements over time. It typically includes the asset's price on the vertical axis and time on the horizontal axis. Traders use charts to analyse price patterns, identify trends, and make informed trading decisions.
4. Order: An order is a trader's instruction to buy or sell a financial instrument at a specified price. There are different types of orders, including market orders (executed at the current market price), limit orders (executed at a specific price or better), stop orders (triggered when an asset reaches a specified price), and more.
5. Lot: In trading, a lot refers to the standardised quantity of a financial instrument that is being traded. The lot size can vary depending on the asset class and the broker. It is used to determine the position size and potential gains or losses in a trade.
6. Pip: A pip, short for "percentage in point," is a unit of measurement used in currency trading. It represents the smallest price movement in a currency pair. For most currency pairs, a pip is equal to 0.0001 or 0.01% of the quoted price.
7. Spread: The spread is the difference between the bid price (the price at which a trader can sell) and the ask price (the price at which a trader can buy) of a financial instrument. It represents the cost of trading and is typically expressed in pips. A narrower spread indicates higher liquidity and lower trading costs.
8. Commission: Commission refers to the fee charged by brokers for executing trades on behalf of traders. It is usually calculated as a percentage of the trade's value or a fixed amount per trade. Some brokers may offer commission-free trading but may compensate through wider spreads.
9. Margin and leverage: Margin refers to the amount of funds that a trader must deposit with their broker to open and maintain a leveraged position. leverage allows traders to control larger positions with a smaller amount of capital. It amplifies both profits and losses, so it should be used with caution.
10. Indicator: An indicator is a tool used in technical analysis to interpret market data and generate trading signals. Indicators can be based on price, volume, or other market variables. They help traders identify trends, momentum, overbought or oversold conditions, and potential entry or exit points.

---

What should beginner traders take note of before trading?

Beginner traders should be mindful of various costs when trading. Some brokers charge fees that affect profitability, including spreads, commissions, account management fees, deposit and withdrawal fees, overnight accommodation costs (swap), inactivity fees, and software costs.

These expenses can significantly impact the overall trading performance. Traders should compare costs among different brokers to find competitive rates. Additionally, they must be aware of hidden or unexpected charges that may arise. Understanding and managing these costs is essential for traders to make informed decisions and optimise their trading strategies.

Choosing the right trading platform as a beginner

When starting your journey as a trader, selecting the right trading platform is crucial. There are several factors to consider before making a decision. Look for platforms that are regulated by reputable authorities, ensuring the safety of your funds. Low fees are essential to maximise your gains, and multilingual customer support can provide assistance in your preferred language.

Additionally, checking ratings and reviews from other traders can give you valuable insights. One platform worth considering is Skilling, a reputable broker in CFDs. Skilling has been recognized for excellence, winning "Best CFD Broker - Global" at the UF Awards Global 2023. Click here if you’d like to learn more about getting started with trading.

---

FAQs

How can I start trading as a beginner?

To start trading, educate yourself about different markets and strategies. Set up a trading account with a reputable broker, determine your risk tolerance, create a trading plan, and practise with a demo account before using real money.

How much money do I need to start trading?

The amount of money needed to start trading varies, but many brokers like Skilling offer accounts with low minimum deposit requirements. It's important to only trade with money you can afford to lose and to carefully manage your risk.

Should I focus on a specific market or asset class?

It's advisable for beginners to start with a single market or asset class. This allows you to develop expertise and better understand the factors affecting that particular market.

What are some common trading mistakes to avoid?

Avoid common mistakes such as overtrading, not using proper risk management techniques, letting emotions drive your decisions, and failing to stick to your trading plan. Consistency and discipline are key.

Do I need to use technical analysis in my trading?

Technical analysis involves studying price charts and patterns to identify trading opportunities. While it can be helpful, it's not the only approach. Fundamental analysis, which focuses on economic and market data, is also valuable.

How important is risk management in trading?

Risk management is crucial in trading. Set appropriate stop-loss levels, diversify your portfolio, and never risk more than a small percentage of your trading capital on any single trade.

Should I use leverage in my trades?

Leverage allows traders to control larger positions with a smaller amount of capital. However, it also amplifies both profits and losses. Beginners should exercise caution when using leverage and fully understand its risks.