What is trading and how to start trading on the exchange from scratch: a complete guide for beginners

by

What is Trading and How to Start from Scratch

Trading is active trading of financial instruments with the goal of making profits from price fluctuations. Unlike investing, which focuses on long-term capital growth, trading concentrates on short-term profit opportunities. Understanding the fundamentals of this activity is critical for anyone considering participation in financial markets.

Definition of Trading and Its Key Characteristics

Trading is speculative trading of securities, currencies, commodities, or other assets on stock, foreign exchange, or commodity markets. The basic idea is to buy an asset at a low price and sell it at a higher price within a relatively short period of time.

Key characteristics of trading include:

  • Short-term time horizon — from minutes to several months
  • Active portfolio management with frequent transactions
  • Use of technical analysis for decision making
  • Higher risk compared to long-term investing
  • Requirement for continuous market monitoring

Different Types of Trading

There are several main trading styles, each with its own characteristics and requirements:

  • Day Trading — opening and closing positions within a single trading day, typically positions are not held after the session closes
  • Swing Trading — holding positions for several days to several weeks to profit from medium-term price fluctuations
  • Position Trading — holding positions for weeks to months, based on long-term trends
  • High-Frequency Trading — using algorithms to execute thousands of trades per second, available only to large financial institutions

First Steps for a Beginner Trader

If you decide to start trading from scratch, you need to follow a structured plan. First and foremost, it’s important to gain fundamental knowledge. Start by studying the basic concepts of financial markets: how stocks, bonds, futures, and forex work. Spend time understanding economic indicators and how they affect market movements.

The second critical step is choosing a broker. A broker is a company that provides you with access to markets. When selecting, consider commissions (typically from 0.01% to 0.5% of the transaction amount), spreads (the difference between buy and sell prices), available instruments, and the quality of the trading platform. For example, one broker may charge $5 per trade while another charges 0.05% of the transaction amount.

Open a demo account before using real money. Demo accounts allow you to trade with virtual funds without the risk of losing money. This is an excellent way to develop and test your strategy in real market conditions.

Developing a Trading Strategy

Trading without a strategy is a path to losses. A strategy should be based on clear rules for entering and exiting trades. Main approaches include technical analysis (studying charts and price patterns) and fundamental analysis (analyzing a company’s financial condition or economic indicators).

For example, a simple technical analysis strategy might look like this: buy a stock when the price crosses the 50-day moving average, and sell when the price drops 3% below the entry point. The probability of success for such a strategy depends on the specific asset and market conditions.

Risk and Capital Management

Risk management is the most important aspect of trading. Practicing traders typically recommend risking no more than 1-2% of your trading capital on a single trade. If you have an account of 10,000 euros, this means you should risk a maximum of 100-200 euros per trade.

Use stop-loss orders — instructions that automatically close your position at a certain loss level. This prevents catastrophic losses. Along with stop-loss orders, use take-profit orders, which close a position when a target profit is reached.

Psychological Aspects of Trading

Trading is not just about technique and analysis, but also psychology. The two main enemies of a trader are fear and greed. Fear can cause you to exit a profitable position too early, and greed can lead to excessive risk. Successful traders stick to their plan and don’t let emotions drive their decisions.

Keeping a trading journal helps you track your trades, analyze mistakes, and improve your strategy. Record every trade, the reason for entry and exit, the result, and your thoughts at the time of trading.

Realistic Expectations from Trading

It’s important to have realistic expectations. Professional traders in developed markets can earn average annual returns of 15-30%, while many beginners lose money in the first year. An average forex trader can expect returns of 10-15% per year with proper risk management.

Start with small amounts of money and gradually increase position sizes as you gain experience. Some traders use the “two percent rule” — increasing trade size only after the account has grown by a certain percentage.

Useful Resources

Leave a Comment