CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Experts Answer the Most Googled Questions About Online Trading

6 minute(s)
Online trading is forecast to continue increasing over the next six years . XTB reveals the potential knowledge barriers that beginner traders may face.
  • Online trading is forecast to continue increasing over the next six years 
  • Financial brokerage, XTB, reveal the potential knowledge barriers that beginner traders may face
  • Experts at XTB answer the most Googled questions about online trading

Due to the coronavirus pandemic, 32% of millennials, 24% of generation X and 16% of baby boomers cited an increase in trading activity as one of their main adjustments in investment habits. However, forecasts suggest this increase will continue, with the global online trading market expected to increase to an estimated 12.16 billion US dollars by 2028.

The financial brokerage XTB also recorded a 68% increase in customers signing up to the online trading platform (from 255.8 thousand to 429.2 thousand) throughout 2021. This increased to 500 thousand sign ups earlier this year, further proving that the popularity of trading is continuing to rise.

However, according to Google, what are the knowledge barriers when it comes to online trading? XTB analysed the most popular search terms from over the last 12 months, using ahrefs, to reveal what key areas potential traders are searching for more information on – and to provide the answers.

The most Googled questions about online trading, answered by experts:

Globally, 57% of people agree that digital tools have improved investment decision-making4 and it is technology, such as social media and search engine tools, that are making it easier than ever before, to help beginner traders get started. Joshua Raymond, Director at XTB, provides the answers to the most searched for questions around online trading:

“What is forex trading?”

Forex trading is the act of speculating on movements in the prices of forex pairs such as the British Pound versus the US Dollar i.e. GBP/USD. The foreign exchange market is the largest financial market in the world and the prices of forex pairs are moving 24 hours a day, five days a week. Foreign exchange prices are constantly due to various factors which affect supply and demand such as macroeconomic data, geopolitical situations and even natural disasters. This makes it one of the most exciting markets to trade. 

Millions of traders around the world speculate on the movement of these forex pairs for financial reward by taking a view on whether one currency will rise in strength or fall in value against another currency. For example, let's say the GBP/USD forex pair is trading at $1.20, meaning one British pound equates to one dollar and twenty cents. If the trader believes that the pound will gain in value against the US dollar, they would buy the GBP/USD pair, expecting prices to rise or appreciate in value. Every time the price of GBP/USD moves high above the traders entry price, they would net a profit. Conversely, every time the price moves below their entry price, the trader would lose money. Speculators including retail traders, investment banks and institutions are doing this all the time all around the world and executing trades in milliseconds.

“What is day trading?”

Day trading is the act of speculating on the movements of thousands of different financial markets including shares, commodities, indices, forex and cryptocurrencies within very short timeframes.

The goal of a day trader is to try and take advantage of small movements in market prices throughout the day and bank a set amount of profit each day which totals up to a healthy amount at the end of each week or month. As day traders are trying to gain from small price movements, they typically utilise leveraged trading such as CFDs to maximise their returns from these small price movements. Day traders aim not to carry any open trade risk overnight and instead typically trade during the most active sessions of the European and US markets. 

One of the most common questions asked is ‘Can you make a living as a day trader?’. The answer is yes and in fact there are millions of day traders around the world doing just that. Nevertheless, as most day traders are speculating using leverage, it’s possible to lose a lot of money too. This is why it’s so crucial to consider prudent risk management strategies when day trading.

“What is leverage trading?”

Leveraged trading allows for a trader to take a greater exposure in the market for a relatively smaller initial deposit. For example, let's say you have £1,000 to invest in Barclays shares which are trading at 168p. That £1,000 would mean you can trade as many as 595 shares (£1,000/168p). However, by using CFDs you can trade shares with a leverage of 10:1, meaning your £1,000 deposit can now control a much larger exposure of £10,000, meaning you can now trade around 5,950 shares. Different markets have different leverage settings such as Commodities, Forex and Indices.

A key benefit of leverage is that it means your return on investment is maximised compared to buying the underlying asset physically. Using the same example above, let’s say Barclays share price moves in your favour by 10%, had you bought the shares physically, you would have made a 10% ROI. By utilising leverage of 10:1, your return would in fact be 100% i.e. double your money (minus any associated dealing costs). Of course this can also work the other way around and you could lose a lot of money too if prices don’t move in the direction you expect. This is why it’s important to utilise risk management tools such as a stop loss. At XTB, we have an education hub where traders can learn more about risk management, as well as read up on hundreds of articles covering trading strategies, terminology and risk control.

“How to trade stocks?”

Stock trading has always been popular as a common segment in an investment portfolio alongside bonds or Exchange Traded Funds (ETFs). In recent years the rise of meme stocks and zero commission stocks has expanded stock trading to new record levels, making stocks education more important today than ever before.

So how do you trade stocks? Simply put, stock trading is the act of speculating on the price movements of individual shares that are listed on global exchanges such as the London Stock Exchange or New York Stock Exchange. Investors take a view on whether a share will go up or down in value and place a trade that reflects that view.

If you are investing in stocks in the physical market, you can only buy those shares meaning you only make a profit if those prices rise in value. Many investors, however, also choose to trade stocks using CFDs as you can also short sell shares, meaning you can profit from prices falling in value as well as up. CFDs are also traded using leverage, meaning you can take a greater exposure in the market than your initial investment amount would normally afford. 

With hundreds of thousands of shares to choose from, how do you decide which stocks to trade? There are some common aspects which investors typically look for when deciding which stocks to invest in, such as dividend yield, price to earnings ratio’s mergers and acquisitions rumours and even insider dealings. You can learn much more about stocks trading strategies at the XTB education hub.

“What is CFD trading?”

CFD trading stands for contracts for difference and it’s the act of speculating on the movement of financial markets without owning the underlying asset. CFDs are a type of derivative product with their prices mimicking the underlying market in which the contract is based i.e. it derives its price from the underlying market.

Two key features of CFD trading concerns trade direction and leverage. Unlike trading investing where you only make money on rising prices, CFDs come with the flexibility that you can trade in both directions (long and short), meaning you can potentially profit (and lose) from prices falling or rising. This gives you greater flexibility when choosing your trading strategy. Additionally, CFDs are traded using leverage, meaning you can take a larger market exposure than your initial deposit would normally be able to control in the underlying market. This can mean your return on investment is maximised, so your potential profits and losses will be greater as an ROI than in traditional investing. This is why CFD trading is also considered a high-risk investment product.

You can trade CFDs based on thousands of different markets across multiple asset classes such as stocks, forex, commodities, indices, bonds, ETFs and more.

Find out more information about online trading strategies at XTB’s education hub here: https://www.xtb.com/en/education 

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.