What Is Trading?
First of all, it’s important to be clear about what trading is and what you can expect to gain from this activity. Trading is the buying and selling of financial instruments in order to make a profit. These instruments can range from a variety of assets, such as currency pairs, commodities, company shares, indices or ETFs, that are assigned a financial value that goes up and down, and you can trade on the direction they take.
It’s also important to always bear in mind that while you can make a profit if your predictions turn out to be correct, you can just as easily lose all your investments if the market behaves differently from what you initially expected.
Is There a Difference Between Trading and Investing?
While these two terms are often used interchangeably, there is a major difference between them in terms of how you can make a profit and whether or not you take ownership of the asset. Traders make profit from buying low and selling high (going long) or selling high and buying low (going short), usually over the short or medium term. However, they don't own the asset they trade.
On the other hand, investors aim to buy shares at a favourable price and take outright ownership of the stock. They make profit from holding the stock and selling it at a higher premium. The hope is that the share price increases over the long-term and they can profit from the movement. Investors could also earn income in the form of dividends if the company grants them. Moreoverover, investors also gain shareholder voting rights.
Which Markets to Trade
At XTB, you can trade a range of markets, including Forex, Indices, Commodities, Stock and ETF CFDs. Choosing the right market for you depends on your personal goals, interests, prior knowledge and available time.
Forex trading is the exchange of one currency for another. The forex market is the biggest and most liquid in the world. Moreover, it is decentralised and one of the few true 24/7 markets.
Forex is traded in pairs, which consist of two currencies that are traded against each other. There are hundreds of different combinations to choose from, but some of the most popular ones include the euro against the US dollar (known as the EUR/USD), the US dollar against the Japanese yen (USD/JPY) and the British pound against the US dollar (GBP/USD).
When trading forex, you’ll be speculating on whether one currency’s price will rise or fall against another currency – for example, if the US dollar (USD) will weaken or strengthen against the euro (EUR). If your prediction is correct, you’ll make a profit. If incorrect, you’ll incur a loss. As with trading other markets, you can go both long and short.
Index trading is speculating on the price movements of a collection of underlying assets that are grouped together into one entity. When you trade on the index, you’re trading on all its constituents at the same time.
Types of indices you can trade include :
- Equity indices
- Sector indices
- Bond indices
- Commodity indices
- Real estate investment trust (REIT) indices
An index’s components will always have something in common which groups them together, e.g. the 500 biggest US-listed companies by market cap are grouped into the S&P 500 index.
At XTB, we offer 30 international indices, including DE30, US30, US500, US100, UK100 and JAP225, so you can trade any of the world's biggest and most popular indices with us.
Commodities trading is speculating on the market price of natural resources such as gold, silver, sugar cane, coffee or Brent crude oil. There are ‘hard’ and ‘soft’ commodities. Hard commodities are mined substances like precious metals, diamonds, oils, gases, and the like. Soft commodities are plant and animal resources, such as grains, sugar cane, coffee beans, cattle and other livestock.
Some commodities, like gold for instance, have a reputation for being a safe haven in troubled times and are often used as hedges against things such as inflation and macroeconomic volatility.
Share trading is speculating on whether the share price of a public company will rise or fall. This means you can go long or short. If you’re bullish, you’d go long, or you’d go short if you’re bearish. Either way, if your speculation is correct, you’d make a profit. On the other hand, you’d incur a loss if you predicted the market movement incorrectly.
Picking the Right Broker for Your Needs
When selecting a broker, you must take into account your own needs and requirements. Listed below are the most important criteria to keep in mind when selecting your broker.
Is the Broker Regulated?
Brokers providing investment services are expected to comply with legal requirements of the country in which they operate regarding the necessary licences and permits issued by the relevant financial market supervision authorities. These bodies are responsible for overseeing the activities of other financial market entities, including Forex and CFD brokers. The aim of such financial market supervision is to ensure stability, safety, transparency and proper functioning of the market.
The role of the regulatory bodies is to safeguard the interests of financial market participants. In addition, these bodies are required to provide reliable and up-to-date information about those supervised by them, as well as protect their legitimate interests against unfair commercial practices and other threats. Trustworthy Forex brokers operate in compliance with applicable laws and guarantees. The supervisory bodies include FCA, CySEC or PSFA. XTB is regulated by the Financial Conduct Authority (FCA) in the UK.
Client Service Language
Making sure that your broker speaks your preferred language is essential when it comes to choosing the right broker for your needs. The most straightforward way to make sure they actually speak your language is to give them a call. Unfortunately, some brokers – despite having a website in a given language – do not provide any client service in that language. This is an important issue, because the lack of proper communication can lead to a number of misunderstandings.
It is important that you are able to effectively communicate your needs to your broker, and feel comfortable working with them. This is why their client service language is so important. Moreover, it’s always a good idea to check whether the broker's website, registration form, instrument specifications and trading platform are all available in your language.
One of the most important considerations when selecting the best Forex and CFD broker is choosing the right trading platform. A trading platform is simply a specifically designed software system for computers or other devices that allows users to trade on financial markets via the Internet. By using a transaction platform, investors can buy and sell in real time the financial instruments of their choice offered by the broker. That is why such platforms are required to operate efficiently, quickly and smoothly, as well as have an interface designed to offer the most intuitive user experience.
A good transaction platform will offer a wide range of analytical tools that every investor needs. These include technical analysis indicators, chart drawing tools, numerous studies and statistics or simply access to the latest and most important market news. Trading platforms, in particular proprietary ones that are created by brokers themselves, are very technologically advanced and give users the ability to implement their own solutions and strategies using the API (Application Programming Interface).
Often, brokers will strive to maintain a long-term relationship with their clients by providing them with a customised solution to their problems. One of the best ways to achieve this is through a trading platform that is highly functional, transparent and easy to use for both beginners and experienced traders.
Another important issue when choosing a suitable broker is the amount of account fees charged by the broker. Most often, these costs will include account maintenance costs, costs associated with spread levels, commissions charged or swap points. It’s reasonable for clients to expect to be provided with clear and transparent rules on fee payment. Nobody wants to go through the stressful experience of having to deal with hidden costs. Brokers are expected to make sure that these matters are communicated in a clear and transparent way.
Forex and CFD brokers, such as XTB, are expected to offer their clients competitive prices without compromising the level of service and quality of product. More often than not, they will place a list of fees for a given account type on their websites under one of the tabs (e.g. Account information). In this way, all crucial information relating to service costs can be displayed in a clear and transparent way. This facilitates cooperation and helps to avoid possible misunderstandings.
The best investment you can make is in yourself and your skills that can help you achieve long-term success. The more we know and experience, the better we can be. An adequate level of knowledge, practice and additional skills such as analytical thinking, can come especially handy when it comes to investing money. Moreover, by investing your money, you can learn humility, patience, discipline and gain the ability to make difficult decisions.
In the world of finance, education should also be given a very high priority. Brokers are often expected to pay special attention to providing their clients with various training courses, webinars or face-to-face meetings to introduce them to new concepts, expand their knowledge, share views and practices, or just to hold a talk with market experts. They are often committed to developing and expanding the education section on their website. XTB ensures that the training provided is suitable for the investor’s level of knowledge and experience.
Making Your First Trade
Once you've picked the right broker for you and opened an account with them, you can place your first trade. Most brokers, including XTB, will also allow you to first test your trading knowledge on a risk-free demo account, where you can trade with virtual money.
To open a trade on XTB's trading platform, follow these simple steps.
Step 1 - Log in to the Platform
Our award-winning, intuitive platform, xStation 5, was designed to help traders find everything they need quickly and easily, regardless of their level of experience.
The first step towards opening your first real trade is logging into the platform.
Step 2 - Choose Your Market
In most cases investments in the financial markets are taken to multiply capital, but at the beginning many investors have limited time to analyse the market and prepare an investment strategy.
The XTB trading platform gives you the opportunity to invest in a wide range of derivatives such as CFDs on forex, indices, commodities, stocks and ETFs. Contracts for Difference (CFDs) are extremely popular instruments, they are a leveraged product, meaning that traders are only required to deposit a small initial deposit in order to gain a much larger market exposure. But you should also bear in mind that due to the leverage, both the potential profits and the size of the possible loss are increased.
Learn more about leverage here.
Whatever your reason for joining the world of investing might be, you don’t have unlimited time and resources available to help you make every single decision. This is why many beginner traders decide to limit the number of instruments they trade when first starting out.
Step 3 - Make a Deposit
The first deposit to the investment account depends only on the individual preferences of each trader. XTB doesn’t set the level of first payment; the trader should analyse how much of his capital he or she is able to spend on investments.
First of all, you should define your own expectations and attitude to risk. It should be remembered that the more ambitious goals an investor sets, the relatively more capital he or she may need to achieve them.
CFDs allow you to use the leverage, that’s why it’s perceived as a risky market. However, thanks to the leverage, you can open relatively larger positions.
The good news, however, is that making a deposit with XTB is quick and easy, with several methods available. This includes bank transfers, credit and debit cards and Paysafe (formerly known as Skrill).
Step 4 - Open a Trade
There are several ways to open a trade, both from the Market Watch window and from the chart.
Trading directly from the chart is the easiest way to make your first trade. All you have to do is to specify the transaction size and click on the green price button if you want to buy or the red button if you want to sell.
The second way is to open an order window by right clicking anywhere in the analysed chart area and selecting “new order”.
The information about your opened position will immediately appear in the order panel.
Another option is to use the click & trade panel that will appear after clicking on the selected instrument. You should only define the size of the trade and decide on its direction by clicking on the red SELL button or the green BUY button.
Another way is to open an order window by double-clicking on the instrument symbol.
The built-in calculator will inform you about the nominal value of the transaction, the required margin, spread value, commision, pip value and daily swap value. In case you decide to set the Stop Loss or Take Profit levels, the calculator will also provide an approximation of loss or profit in case either of the orders is activated.
Then you simply need to adjust the size of the order to your own investment style and click either the SELL or the BUY button.
Step 5 - Manage Your Trade
To secure your transaction you can use Stop Loss or Take Profit orders. The Stop Loss order will allow you to limit your losses when the price moves in an unprofitable direction, and Take Profit automatically ensures profit at a predefined level. Thanks to these orders, there is no need to constantly monitor the position.
They can be added at any time after placing the order or with trade. There are several ways to define parameters in the order window:
- setting their level
- specifying the distance in pips
- giving the nominal value
- by determining the percentage by which your current account balance will increase/decrease when SL/TP is activated
For more experienced traders there is a much faster method of determining these orders from the click & trade panel in the upper left corner of the chart.
To change your Stop Loss or Take Profit levels, simply drag the SL and TP symbols on the chart to the desired level.
You can also double your trade (open another trade of the same size) or invert it (close and open trade in the opposite direction) by clicking on the buttons on the right hand side of the open trade.
Step 6 - Close Your Trade
Closing the order is the most difficult part of the investment process, because you need to make a decision at the right moment to close both the one that brings profit and the one that generates loss. The trade can also be closed by executing Take Profit or Stop Loss orders, but if you change your mind you can easily close the transaction in a traditional way.
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.