Technology and the internet have given millions of people the opportunity to invest in the financial markets. Online trading, i.e. buying and selling financial instruments with the aim of making a profit from the price difference in the very short term, is a very popular form of investment offered by a myriad of online platforms and brokers. However, investors should be fully aware of not only how this type of investment works, but also the many risks and costs involved.
Online trading is actually the opposite strategy to that of the long-term investor: the trader aims to make profits from the price changes of an asset - possibly several times - over the course of a day. This is often referred to as intraday trading, i.e. a strategy that involves opening and closing a position over a period of no more than one day, although the time span is often much narrower, ranging from a few hours to a few minutes.
The online presence and the ease with which it is possible to start trading online should not lead investors to ignore the risks: in this sense, they range from the possibility of making investments that considerably exceed one's risk tolerance (using instruments such as leverage of which one is not aware of the potential for loss, which may even be greater than the capital available), to falling into the trap of a scam. In this sense, it is essential to ensure that the platform on which you invest is duly authorised by the competent supervisory authority.
If you decide to invest in online trading, the first step is to choose an online financial intermediary (broker) with whom to open an account and deposit the capital you wish to invest. The next step is to choose a trading platform on which to trade assets, ranging from the foreign exchange market (Forex) to commodities and even riskier investments such as cryptocurrencies.
Once you have chosen a financial instrument, you start trading by sending a series of orders to your broker. These can be simple orders to buy a security at the market price, or more complex orders to buy a security only if it reaches a certain level (limit order), or to stop selling if it falls below a certain level (stop loss). However, as the US financial regulator, the Securities and Exchange Commission (SEC), points out, it is important to consider the possibility that the order may arrive later than the market moves. More generally, the SEC adds, one must consider the possibility that the order may not always be instantaneous.
This phase corresponds to the opening of a position, followed by the closing of the position, when it becomes clear whether you have made or lost money on the trade. Another aspect to consider when looking at potential profits and losses are the costs associated with the orders, which are also the source of income for the financial intermediary.
In the world of trading, an investment method is widely used that is based on what is known as 'technical analysis', i.e. analysis based - to simplify it as much as possible - on the study of charts. These charts show, for example, 'supports' and 'resistances': these are critical thresholds that prices tend not to cross unless there is a major change in the overall valuation of the asset in the markets. A very popular chart for trading is the bar chart and the so-called 'Japanese candlesticks': these are charts that show both the difference between the time the position was opened and closed (based on the size and colour of the bar/candle) and the high and low, with dashes ('shadows') at the ends of the bar.
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