Online trading is the ability to buy and sell financial assets through an online brokerage platform or mobile app.
Many online trading platforms offer prices on hundreds of financial instruments. These include forex, commodities, indices and shares.
Online trading platforms mean you no longer need to call your broker to execute trades. You can open your own trading account online and start trading the financial markets.
Is Online Trading the Same as Investing?
No, there is a difference between online trading and investing. As an online trader you can take a short-term position on moving market prices, with the aim to make a profit. Spread betting and CFD trading are a form of financial derivatives that can be traded online. You can take a position on rising or falling prices without owning the underlying stock, index or commodity on which prices are based.
Investing involves buying an instrument and holding it for an extended period of time. An investment represents your ownership of the asset.
What’s the Difference Between CFD Trading and Spread Betting?
The main difference between the two is that spread betting is available in the UK only. CFD trading, on the other hand, is offered in many countries globally. Another key difference is that spread betting is currently exempt from stamp duty in the UK.
Both spread betting and CFD trading are exempt from Capital Gains Tax in the UK.
When you spread bet or trade CFDs, you can trade on the rising or falling price movements of hundreds of financial instruments. These include foreign currencies, indices, commodities, shares and bonds.
You can take a position based on whether you think the price of an instrument will go up or down. This means that you could net a potential profit even when market prices are falling.
Spread betting and CFD trading are a form of leveraged trading. You could open a trading position by depositing just a fraction of the full value of your trade. Leveraged trading enables you to potentially make bigger profits if the markets move in your favour. Your losses, however, could also stack up quickly if prices move in the opposite direction.
It helps to remember, therefore, that your losses could exceed your initial deposit.
What Should I Look for in a Trading Platform?
There are some key features you should look for in an online trading platform. Does the platform offer 24/7 customer service through channels such as phone, chat, and email? Does it offer live prices? You should also consider the platform’s security and stability.
Finally, check what kinds of tools and resources your trading platform offers. These include a built-in charting software, news resources, and risk management tools.
How Can I Minimise Risk?
Many trading platforms offer risk management tools to help you limit losses. You should also set a stop-loss order for your online trades, whenever possible.
It also helps to do your research and learn about risk management before entering any trades.