Frequently Asked Questions

What is trading?

Trading is the act of buying and selling financial instruments, such as currencies, stocks, or commodities, with the goal of making a profit from price movements. Traders aim to buy low and sell high (or sell high and buy back lower in the case of short-selling), typically over short to medium time frames. Trading can take place on exchanges or over-the-counter platforms and involves various strategies and time horizons.

What are financial markets?

In financial markets, buyers and sellers come together to trade assets such as stocks, currencies, bonds, and derivatives. These markets include the stock market, forex market, commodity markets, and crypto markets. Prices in financial markets are determined by supply and demand, and they react to economic news, geopolitical events, and market sentiment.

What is a trading instrument?

A trading instrument is any asset or contract that can be bought or sold on a financial market. Common trading instruments include currency pairs (like EUR/USD), stocks (such as Apple or Tesla), indices (like NASDAQ or S&P 500), commodities (like gold or oil), and cryptocurrencies (like Bitcoin). Each instrument behaves differently and may be influenced by specific factors.

What is a trading terminal?

A trading terminal is software that allows traders to place, modify, and close trades, as well as monitor market data in real time. Examples include MetaTrader 4 (MT4), MetaTrader 5 (MT5), and cTrader. Terminals often include charting tools, indicators, and order management features, making them essential for executing and managing trades effectively.

What is a trading account?

A trading account is an account opened with a broker or trading platform that enables a trader to deposit funds and place trades in the financial markets. It tracks your available balance, open positions, profits and losses, and other essential trading metrics. Some accounts are demo (for practice), while others are live (using real money).

What’s the difference between investing and trading?

Investing typically involves buying assets with the intention of holding them for a long period to benefit from gradual appreciation, dividends, or interest. Trading, on the other hand, focuses on short- to medium-term price movements and aims to capitalize on volatility. Traders are generally more active and place more frequent orders than investors.

What is leverage in trading?

Leverage allows traders to control larger positions with a smaller amount of capital. For example, with 1:100 leverage, a trader can open a $10,000 position with just $100 in margin. While leverage amplifies potential profits, it also increases the risk of losses, making proper risk management essential.

What is a margin?

Margin is the amount of money a trader must deposit to open and maintain a leveraged position. It acts as collateral for the trade. If the trade moves against the trader and their losses approach the margin amount, the position may be closed automatically to prevent further losses, a process known as a margin call.

What are long and short positions?

A long position is when a trader buys an asset expecting its price to rise. A short position is when a trader sells an asset they do not own (often via derivatives), anticipating the price will fall so they can buy it back at a lower price. Both types of positions allow traders to profit from market movement in either direction.

What is a stop loss and take profit?

A stop loss is an order that automatically closes a trade when the price moves against the trader by a specified amount, helping limit losses. A take profit is an order that automatically closes a trade when the price reaches a desired level of profit. Both tools are essential for risk and profit management.

What is a lot in trading?

A lot is a standardized unit of measurement for trade size. In forex, one standard lot equals 100,000 units of the base currency. There are also mini lots (10,000 units) and micro lots (1,000 units). Lot size affects the value of each pip movement and, consequently, the risk and reward of a trade.

What is a pip?

A pip (percentage in point) is the smallest price movement in most currency pairs. For most pairs, it’s 0.0001, while for yen pairs it’s 0.01. Pips are used to measure price changes and calculate profits or losses. For example, if EUR/USD moves from 1.1000 to 1.1010, it has moved 10 pips.

What is market volatility?

Market volatility refers to the degree of variation in the price of a trading instrument over time. High volatility means large price swings and greater risk, but also more trading opportunities. Volatility can be caused by economic news, geopolitical events, or changes in market sentiment.

What are market orders vs. pending orders?

A market order is executed immediately at the current market price. A pending order is set to be executed later when the price reaches a specified level. Types of pending orders include buy limit, sell limit, buy stop, and sell stop. Traders use pending orders to plan entries and exits in advance.

What is a trading strategy?

A trading strategy is a predefined plan that outlines how a trader will enter and exit trades. Strategies can be based on technical analysis, fundamental analysis, or both. Examples include trend following, scalping, and breakout strategies. A good strategy includes risk management rules and clear entry/exit signals.

What are the main asset classes?

The main asset classes include currencies (forex), stocks (equities), indices, commodities (like oil, gold), and cryptocurrencies. Each class behaves differently and offers unique risks and rewards. Traders often specialize in one or two asset classes depending on their goals and expertise.

What are trading hours?

Trading hours vary depending on the market. For example, the forex market is open 24 hours a day from Monday to Friday, while stock markets like the NYSE have set hours (e.g., 9:30 AM to 4:00 PM EST). It's important to know when your preferred market is open and most active.

What affects market prices?

Market prices are influenced by supply and demand, economic data (like inflation, interest rates), geopolitical events (like wars or elections), and market sentiment. News releases can cause sharp price movements, and traders often use economic calendars to plan around them.

How do I start trading?

To start trading, choose a reliable broker or prop firm, open an account, and deposit funds. Then select a trading platform, develop a strategy, and practice on a demo account if possible. Education and risk management are key before trading real money.

What are the most common beginner mistakes?

Common mistakes include overleveraging, lack of a trading plan, emotional trading, neglecting risk management, and trying to get rich quickly. Beginners often underestimate how much discipline and education trading requires. Taking time to learn and practice is crucial for long-term success.