The investing and trading market is a tough nut to crack. For outsiders, it may seem difficult to understand and dangerous to attempt. Even if you’ve read a reliable review of Plus500, IG or any other broker saying that it’s easy to trade, getting started into investing can be quite scary for a beginner. And, like with anything we throw our money at, researching before spending is fundamental. But the trading and investment market doesn’t have to be scary. If you’re interested in joining this world, read along for a better understanding of what sets trading and investing apart – and for a run through of the four most common types of active trading.
Trading vs. investing: What’s the difference?
Many regular people tend to confuse trading and investing because they find it hard to pinpoint the differences between the two. A rule of thumb is that when investing, you are looking for long-term return, whereas when trading, you are looking for short-term returns.
Active trading is when we buy and sell based on short-term movements. Trading consists of buying and selling stocks, currencies, bonds or commodities that are all fluctuating in value frequently. That is why trading is short-term: Because the values change quickly, you will also profit from a good trade quickly.
4 most used trading strategies
Active traders believe that short-term movements and capturing the market trends is where the profits are made. To do so, they have to choose a strategy. These are the four strategies most commonly used by active traders:
Day trading
Day trading is the most well-known form of active trading style. Day trading is the method of buying and selling securities within the same day. Positions are closed out the day they are taken, and nothing is held overnight.
The most common types of trades in day trading are currencies, futures and stock markets.
Day trading has become more accessible through the use of online trading, and one increasingly popular trade is forex trading – the exchange of currencies. If you’re looking to try this kind of trading, you can find forex brokers at https://www.fxforex.com/en-gb/.
Position trading
Position trading is more long-term than day trading, as it can go from a daily trade to a monthly trade. How long the trade lasts depends on the trend the trader follows. Position trading is also referred to as trend trading. These traders tend to ride the wave of the trend, aiming to benefit from both the up- and downside of market movements, which makes it a bit difficult for regular folks to understand and profit from.
Swing trading
Swing traders join the game when a trend ends. At the end of a trend, there is some price volatility as a new trend tries to establish itself. Swing traders buy or sell when this volatility sets in. Swing trading is typically confined to the stock market because of the large level of price fluctuations, and it demands a bit of stock knowledge to be profitable.
Scalp trading
Scalping is one of the quickest strategies used by active traders. Scalp trading works by identifying and exploiting bid-ask spreads that are a little wider or narrower than normal due to temporary imbalances in supply and demand. Scalp traders seek to capitalize on small moves that occur frequently, and unlike swing traders, they prefer quiet markets that don’t have sudden price movements.
Day traders can use this strategy as well, because it is a fast-moving trade strategy. These trades are typically in the stock market as well.
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