Trading does not always require physical assets. With digital platforms, anyone can reach global financial markets and trade using different instruments.
The digitized economy has changed the ways traders, intermediaries, and exchanges interact for business. What once required countless phone conversations between investors and brokers is neatly condensed into platforms. These require only limited communication between the two. Here is an overview of the most popular digital trading methods today.
1. Trading on Foreign Exchange
Forex is the largest and most liquid of all markets. However, the reason for its size and tempestuous nature is simple. Any time a business or individual buys something from abroad, or travelers visit foreign countries, the exchange is unavoidable. All purchases require payment in the seller’s currency. Therefore, import and export are major contributors to currency rate dynamics across the globe.
2. Digital Stock Trading
The realm of online stock trading is vast. There are dozens of methods with numerous agreements and buy/sell options. It seems no human could master all of the existing instruments in their lifetime.
Smaller companies generally start by issuing penny stocks. The term makes sense, as each of these shares is less than a dollar worth. Larger IPOs like Facebook, Twitter, Instagram, etc., may release initial stocks for tens, even hundreds of US dollars apiece. There is a number of different methods and strategies one can employ in stock trading:
- Day Trading,
- Short Term,
- Medium Term,
- Long Term.
An important aid in the realms of Forex trading and stocks is copy trading. The arrangement allows you to delegate decision-making to a strategy manager. This way, they receive a fee in case of profitable strategies. The convenience of positions by proxy explains the rise of copy trading in Thailand and other countries.
3. Trading of Options
This type is not advisable for beginners. It can be very hit or miss, and typically requires years of experience across many methods. Before you can effectively speculate future prices, there is a lot to learn.
This category comprises the majority of tradeable finance products. Importantly, degrees of risk often vary depending on sellers. The range includes the following:
- real estate holdings.
With options, you contractually agree to buy an instrument at a certain price at a certain “expiry” date. If the price grows by expiry, you can sell at a profit. In case of a downtrend, your investment is lost, along with any purchase fees and penalties paid.
4. Contracts for Difference
Like other forms of trading, Contracts for Difference are based on the same fundamental logic. You intend to buy low and sell high. It is possible to purchase CFDs tied to stocks, indices, currencies, or commodities. The main distinction is that the underlying assets are neither owned nor traded.
Here is what this contract between a buyer and a broker looks like. You purchase CFDs based on their current value – e.g., $1.00 apiece. Most brokers only require a percentage down payment, which is known as “trading on margin”. The latter is the share of your own capital – e.g., 5%. The rest (leverage) is covered with borrowed funds from the broker. Thus, in the above-mentioned example, you would only be paying 5 cents per share.
As a leveraged format, CFD trading has a lower barrier to entry. Compare this with conventional brokerage firms that charge a 50% margin for stock or currency trades. However, if the CFD value nosedives, you are obliged to cover losses relative to the initial value. As a result, your margin is lost.
5. Trading of Cryptocurrencies
Digital coins are known (or infamous) for their volatility. One of the reasons for their appeal is the lack of regulation. State agencies like the Securities and Exchange Commission (SEC) are still working out rules to manage cryptocurrency flows. Today, many experts recommend short selling, rather than buy-and-hold methods.
Another important aspect of crypto trading is security. Bitcoin and altcoins, such as Ethereum or Dash, are associated with cyber risks. When actual crypto changes hands, hackers may obtain sensitive data. A way to avoid such dangers is to trade via a registered broker and use CFDs. This way, your profits are based on the price of a currency, with no coins being bought or sold.
Overall, the opportunities are aplenty. Today, over 15 million people engage in internet-assisted trading. Given the pace of digitization, the trend is only predicted to grow. Whatever market you choose, online tools make it more accessible than decades ago.