Common financial trading FAQs

Here, we look at why it's worth educating yourself before starting to try and make a profit through financial trading.

Financial trading, at its core, is no different to trading in general. Traders buy and sell various financial instruments (be they shares, CFDs, or commodities) in an attempt to make a profit. When looking to increase your moneymaking efforts through financial trading, you should always understand what financial instrument you’re investing in and the performance of the respective market. However, the world of financial trading is quite complex, and there are a number of common FAQs about CFDs that may pop up, so it’s worth educating yourself before starting to try and make a profit through investments.

What is the difference between trading derivatives and trading cash instruments?

In short, when you trade a cash instrument, you are for a time the owner of that asset. When trading derivatives, you never actually own the underlying asset. Generally speaking, derivative trading is more high gain and high loss, and requires a lower minimum investment.

What is day trading? How is it different from other types of trading?

Day trading refers to trading that takes place within the same day – the same day you purchase an instrument, you sell it. It differs from Scalp trading where an individual makes up to hundreds of trades a day, and from Swing/Position trading where instruments are held longer term.

What is a CFD (Contract for Difference)?

A CFD is a form of derivative trading, where you speculate on the rising and falling of a financial instrument. Instead of commissions and fees, you generally pay a spread when purchasing and selling. CFDs deliver higher leverage and the ability to trade with a smaller amount.

What sort of person makes a good trader?

Whilst you don’t have to be a maths genius to make a good trader, a solid analytical background is useful. You have to be able to make rational decisions, be able to walk away from a loss making trade, and have an amount of capital that you can afford to lose.

How much capital is required to start trading?

It depends whether trading cash instruments or derivatives, and what sort of trading you are doing. For day traders in the U.S trading stocks, legally you need at least $25,000 to day trade, and will not be allowed to day trade if your balance dips below that. With CFDs though, you can trade with as little as $1000, depending on the broker.

What trading should I get into?

That depends on what sort of trader you are. But as you’re reading a list of common Financial Trading FAQs, it can be assumed you are relatively inexperienced. Figure out where your expertise lies in terms of sector, whether cash instruments or derivatives are appropriate for you, and then decide what type of trading is for you. Perhaps spend some time with a virtual account.

Where can I start trading?

Trading platforms such as Stern Options provide an excellent vehicle to secure your investments through their user-friendly and easy-to-use dashboard, offering a clear overview of what your investing in and market performance. All you have to do is sign up, deposit money into your trading account and start trading.

Hopefully, these series of questions will have provided you with the information required to make an educated decision as to how you proceed to securing your investments. Moreover, the more educated you are on financial trading options, the more likely you’ll be able to trade successfully as you’ll start to recognise which markets and assets are more likely to return a profit.

Ben Lobel

Ben Lobel

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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