It is the 21st century and in this day and age there are a wide number of ways to invest money and one of these, as it always has been is trading, however, in recent times, trading has evolved and thanks to many online services and platforms, one of which is for example, CMC markets, people can now trade much more easily, for example, from the comfort of their very own home and also have a much wider selection in terms of what to trade in and a lot more financial instruments at their disposal, all of which will have varying degrees of associated risk and reward for investment. It has simply never been easier to start trading, due to these new and exciting ways and platforms in which to do so, as well as the vast library of training videos, with helpful tips and tricks to starting trading. This article will look at many of the different ways in which trading can now be done.
Traditional / Standard Trading
The traditional way to start trading is by buying stocks or shares of a company, currency, index or commodity at one price and then you own the share. Following this, a subsequent sale can be made, which is hopefully at a higher price than the one you paid for and therefore, a profit can be made. However, there are now many more ways that can be used in order to make a profit by trading, that allow for a greater variety of ways in which money can be made.
Whilst spread betting has some similarities to traditional trading, the type of trading is often appealing because of the fact that any of the profits made are not subject to capital gains tax and also any stamp duty and this means all the profits that you make, you can keep, which is a major advantage over traditionally buying the share. In addition to this, any profits made are said to be ‘leveraged’ and this means that you could generate a higher profit, for the given investment, however, it also means a larger loss could be incurred for a given investment. The method works by predicting whether a share price will rise or fall, another advantage over the traditional method, where only rising share prices will generate a profit. A profit will be made based on whether or not the prediction made is true or not.
A stake amount is placed on the stock and for every point in the direction of the prediction your share moves, you will generate a profit of this share stake, however, this is also true of the losses generated.
Contracts for Difference (CFD)
Similar to spread betting, this method also means money can be made based on whether the stock is rising or falling and a prediction must be right in order to get a profit. Similar downsides are observed in that the profits and losses are both leveraged, however it differs from spread betting in terms of how the profit is calculated. In a CFD trade, it is the difference in the price at the start and end of the contract, multiplied by the number of shares ‘bought’ that is the profit. The customer in this case, as in spread betting does not actually own or buy any shares, unlike standard trading, but can see higher returns on an investment.
These are a type of CFD trading and they allow for a more limited risk than a traditional CFD trade. The binary offers a fixed profit/loss at the end of any period of allotted time, typically starting at around 5 minutes, they are generally short term investments, whatever way the share has moved in that time, if it is in the favour of the investor, a fixed amount will be paid.
Amongst these types of trading, it is worth noting, that anything can be invested with pretty much all of them, these can be shares in Forex companies, indices, commodities etc. The newer ways of trading that differ from traditional trades are generally speaking, much better suited to someone who is looking to make short-term investments and has limited capital, however, traditional trading generally has less risk, but not as much return on investment and so it is better for larger amounts of capital for longer term investments.