The Different Types of Online Trading and Their Benefits
Investors have a wide range of trading options to choose from. Some prefer short term trading options, while others prefer to play the waiting game and make larger profits by undertaking long term trading strategies.
Trading can be split into three distinct categories. These include short term, medium term and long term trading.
- Short term trading usually refers to trading that lasts up to a few weeks.
- Medium term trading lasts for a few weeks to a few months.
- Finally, long term trading involves holding securities for months and even years.
Each type of trading has their own merits and the type of trading strategy often depends on funds available, the research methods a trader uses and their willingness to accept certain risks.
Technology has also had an impact on trading. Traders are now emerging from all walks of life who are interested in a range of online trading strategies and products including day trading, position trading, swing trading, scalping, online CFD trading and other popular forms of trading.
These are some of the most common types of online trading available.
Day Trading is one of the most common forms of trading. It’s a short term strategy where you buy and sell securities on the same day. Traditionally this type of trading was normally carried out by professional traders. In recent years improvements in technology and the emergence of a wide range of online CFD trading websites means non-professional traders can also trade in these types of securities.
Different types of Day Trading takes place, with different traders specializing in certain areas. The most common types of day trading strategies include the following:
- Price Action Trading
- Rebate Trading
- Momentum Day Trading
- Market Making
- News Trading/Playing
- Pattern Trading
Benefits of Day Trading – Day Trading can be a fast way to make huge gains in a short amount of time. Once again this depends on your research and the accuracy of the data you use to decide what securities to buy and sell. This type of trading is also the ideal way for novice investors to get their feet wet by investing a small amount in a single days trading CFD. The experience you gain from buying and selling in a single day will be invaluable later if you decide to invest larger sums of money.
Position trading is a longer term strategy where traders buy and hold securities for longer periods of time. This type of trading often involves keeping securities for weeks and even months. The decisions to buy and sell are normally based on extensive research of market trends and predicting changes in the market in the future. The trader buys at the beginning of a trend and sells when the trend reaches is height.
Benefits of Position Trading – Position Trading is based on extensive research. If you have access to accurate facts and you can see trends emerging, this is a potentially lucrative way to invest. Most traders who invest this way take action when a trend starts to gather momentum and sell when a trend is at its peak. If you have accurate data, it can be easy to predict when to buy and when to sell using this trading strategy.
During certain stages of a trend, Swing Trading often takes place. This type of trading takes advantage of the price ‘swings’ that occur during certain stages of the lifecycle of a particular trend. Traders try to predict highs and lows during a trend based on their research and data they collect for a specific security. Unlike day trading, Swing Trading involves keeping trades for more than a day to maximize the gains made when a trend gains momentum. Once again this type of trading depends on a trader’s judgement and accuracy of data they base their decisions on.
Benefits of Swing Trading – Succeeding at Swing Trading is all about spotting trends and taking advantage when a trend gathers momentum. If your research and data is accurate this is a potentially lucrative way to benefit from volatility that occurs during certain stages of a trend.
Scalping is a fast way to trade. With this trading method, traders take advantage of gaps created by bidding and asking spreads and order flows. A profit is made by selling at an asking price that’s higher than the spread or buying price of a security. The fact that this is a short term strategy reduces the risk taken by traders. More often than not, Scalping involves smaller amounts, smaller profits per trade and more frequent trading by traders who are also known as scalpers.
Benefits of Scalping – The profit margin for each trade is lower than many other types of trading strategies. However, these profits can quickly add up. Scalping is a faster trading strategy and you don’t have to wait for certain trends to emerge before you can begin trading. There is less analysis required when you’re a scalper. You can avoid sleepless nights worrying about events taking place on the stock market because trades normally take place on the same day.
Online CFD Trading
CFD’s or Contracts for Difference products let traders speculate on the price movements of various types of stocks on the market. When you’re trading CFD products you don’t own the stock. You simply buy the right to speculate on its market price change in the future which could result in a rise or fall in value.
Benefits of Trading CFD – It’s easy to carry out CFD trades thanks to a range of online services dedicated to this type of trading. With CFD’s there’s a high risk involved. However, the returns can be well worth this risk.
Today’s traders have many options to choose from. The increased use of the internet and a range of online CFD trading websites makes it easier for experts and novices to start trading from any location. Once you understand the different types of trading and their benefits you can start investing in a way that’s most appropriate for you and satisfies your requirements.
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Boris Dzhingarov graduated UNWE with major marketing. He is passionate about blogging. Boris writes for several sites online.Read Full Bio