What Is Trading? – Definition & Explanation

Trading: What is it and what types of trading are there?

Before you register with a broker and invest real money, you should familiarise yourself with the basic features of trading. Trading, what is it? We will answer this question in detail. Those interested will not only learn the differences between scalping, day trading and swing trading, i.e. the different trading styles that are distinguished in language usage.

The basics will also be explained. These include where you can buy & trade shares online, what features you should look out for when choosing a broker and what advantages a demo account can offer. Especially beginners benefit from this information. But also experienced traders can certainly benefit from it.

Which characteristics should interested traders bring along?

It is probably easier than ever before to invest capital in shares and other securities. If you can already answer the question “What is trading?” in detail, there is nothing to stop you from registering with a broker.

You can then capitalise your trading account and, when trading CFDs, invest in foreign exchange (What are foreign exchange?), shares (What are stocks?), indices, bonds or commodities (What are commodities?). Since this can be done directly from your home PC, online trading is often seen by outsiders as a way to make a lot of money with little effort.

However, this is not quite as simple as that. You must expect to lose money from inexperience at the beginning of your trading career. The most important personal qualities that traders should have are stamina and the willingness to learn new things. To enable you to test strategies without risk, a lot of brokers provide you with a free demo account.

Charts and curves can only be analysed with suitable software

To the question “What is trading?” has been explained up to this point, among other things, what is generally understood by “trading” and which characteristics traders should bring with them if they want to act as successfully as possible over a longer period of time.

In the next step, we will now look at the software that is used to trade CFDs in stocks, indices, commodities and other underlying assets. The trading platform should be clearly laid out, and especially if you want to remain flexible at all times even when you are on the move, it can be worthwhile to find the best trading app for you.

The most brokers offers an innovative solution in this area that is designed to make it easier for beginners in particular to get started. With a mobile version, traders also have access to coaches whose strategies can be implemented on both demo and real money accounts.

Chart in many variants presentable – What is Online Trading?

What is Online Trading? When you think about the price development of a security, you probably have a line with sawtooth-like swings still above and below in mind. This is a classic line chart. This form of presentation is usually chosen at the beginning of a chart analysis, as it provides an overview of overriding trends.

However, since only the daily closing prices are noted in the chart and connected by the line, the disadvantage arises that daily fluctuations are completely ignored. The bar chart display provides considerably more information. In this case, the line chart is supplemented by bars (bars) that represent, for example, an hour, a day or a week. Each bar contains the following information:

  • Lowest price
  • Highest price
  • Fluctuation margin
  • Opening price
  • Closing price

In the candlestick chart, this is not represented by bars, but by so-called candlesticks. These also contain the information mentioned above. In addition, the size of the candlestick body provides information about the distance between the opening and closing price, and its color also indicates the net movement.

Traders use these tools in addition to the chart

The chart is without doubt one of the most important, but by far not the only tool for traders. If you want to invest money while trading, you should also consult information from additional sources. For example, you can use a newsfeed to get the latest economic and financial news. Markets usually react quickly to developments in this area. Political decisions or natural disasters can also have an impact on prices.

Risk management software is now also part of the equipment of many professional traders. Due to the wealth of possible tools, it is advisable to use more than one monitor when trading online. Thus you have the possibility to operate the stock software on one and, for example, analyse the price chart in full-screen mode. The other tools can also be used on one (or more) other monitors.

What is trading?

Different styles explained

Reference was already made at the outset to the different trading styles from which investors can choose. When differentiating between the styles, the temporal orientation of a trade is always taken into account. As a trader, you have the option of closing positions on the same day of opening, but you can also hold them for weeks or even months.

To find out which style suits you best, you not only have to deal with the question “What is trading?”, but also try out the different styles at the same time. Although this step is time-consuming, there is largely no alternative. The trading style is often equated with the trading setup, but these are two different concepts.

Difference between trading style and trading setup

What is meant by trading? Before we introduce the different trading styles in detail, we will first discuss the difference between the terms trading style and trading setup. The trading style first determines the approximate holding period of a position. If the difference between the buy and sell price is to be only a few pips or points, traders aim to close the position on the same day.

However, if the pip difference should be at least in the three-digit range, a holding period of several days to weeks can be expected. The Trading Setup, on the other hand, determines the conditions under which a trade is executed. Traders choose these parameters as part of a strategy and are required to open a position only when the conditions are met. Again, discipline plays an important role, as every now and then it can take days before such a trading opportunity arises. Especially beginners should not lose patience then.

Trading Definition: Investors can choose between these styles

As you have already noticed, the question “Trading – what is it?” can be answered in many ways. Not all trading is trading. We will take up this sentence from the opening lines again here and offer an overview of the different trading styles below:

  • Position Trading
  • long duration trading
  • swing trading
  • Day trading
  • Scalping
  • high frequency trading

It should be noted that it is not always possible to draw an exact line between individual breastfeeding sessions to 100 percent. Position trading, for example, is a form of long duration trading in which the focus is on holding positions for several weeks. But how many weeks one style ends and the next begins is not fixed anywhere. The situation is different in short-term trading, where positions are kept open for a maximum of one trading day, depending on the style.

Position trading is one of the most used styles

When the question “Trading, what is it?” comes up, position trading is usually the obvious answer. In fact, when we talk about trading with an online broker, we are actually talking about position trading. What is the main feature of this style?

As mentioned before, this is a form of long duration trading. Position traders – the name given to investors who follow this style – seek to identify long-term trends and hold positions for several months.

Anyone wishing to use position trading should also consider the question “What are stocks? These securities lend themselves to position trading. It is not without reason that shareholders often hold their company shares for several years. In this context, the “buy and hold” strategy is therefore also referred to.

Day traders aim at short-term market changes

The above list of trading styles is arranged in descending order of the holding period of open positions. As already explained, the focus of long duration and position trading is on holding for several weeks or months.

Swing traders operate with shorter holding periods, these are at most a few days. Day traders even use shorter holding periods. As the name suggests, positions are closed out on the day of opening.

How do shares work in this area? The investment in shares is also possible for day traders and mostly takes place in the form of CFDs. Thus large positions can be traded with relatively little capital and investors can make a profit even after small price increases.

Tip: Scalping and High-Frequency-Trading is less recommendable for beginners, as holding periods are sometimes in the range of nanoseconds. The combination of volatile markets with high leverage also creates increased risk.

Broker

These underlying assets are traded by traders
In a broker comparison, interested parties should always pay attention to the underlying assets provided by a provider. Both inexperienced and experienced traders can benefit from a large selection. Not only is there a high probability that they will find an underlying that meets their requirements, there are also significantly more investment opportunities. If you would like to invest money via Online Trading, for example, you can choose from these underlyings:

  • Stock Indices
  • Shares
  • Crypto Currencies
  • Foreign exchange
  • Raw materials
  • Bonds

Trading always takes place in the form of CFDs. This means that the total value does not have to be deposited to open a position, a margin is sufficient. This creates a leverage effect, which can result in disproportionate profits as well as losses. Using various filter options, you can limit the large selection and, for example, display only TOP stocks.

Conclusion:

Trading can also be learned by beginners
In conclusion, there are several satisfactory answers to the question “What is trading? This is particularly gratifying for beginners, as it gives them the opportunity to trade shares and other securities. Before doing so, however, they should get an overview of the best trading strategies and get to know the different trading styles.

Even the use of a demo account can help to answer all questions about “What is Online Trading? The big advantage of this is that in order to familiarise yourself with the platform and the trading offer, virtual capital for trading is available to you on the demo account so that you do not have to invest your own money. Register today to use the non-binding demo account.

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