Online Trading: Definition, Meaning & Examples

Online trading cover

With the boom of technology, especially the internet, we are moving towards a paperless world. While this dream is yet to be fulfilled, we are already living in a reality where we do not require to carry any cash in order to complete a transaction, it can also be seen as a form of trading as well, and from the last two decades, some individuals and companies saw the potential future of this technology and took this into a new level. Online trading is one form of online transaction which has either led people to gain millions or lose an equal amount. So what exactly is online trading?

What is Online Trading?

As the name suggests, it is a form of trading that occurs online, where one purchase or sells finances or products on the internet. Unlike traditional in-person trading, this allows one to make deals on the financial market in mere seconds, but one similarity that still exists with this form of trading is the requirement of a broker by a private trader. A broker is a firm that provides a trading platform to the trader and here one does need to meet the broker and every transaction occurs over the internet. The process of online trading is full of high risk and high reward, it goes something like this.

Doing online trading

A person trading online.

1. A trader decides to purchase a set amount of shares of some company (it doesn’t have to be shared, other forms of trading exist).

2. After deciding how many shares to purchase in the trading platform, an order is placed for the broker.

3. Upon receiving the request from the trader, the broker executes the order and finds another party that is willing to buy the shares at the same price.

4. Once the party is found, a deal is made.

In the past, this process used to take days or even weeks, but now thanks to the internet everything happens automatically and within minutes.

Some important terms in Online Trading

While learning about online trading from the internet videos is an easier way, sometimes the lingo they use can become a limiting factor when it comes to understanding the core concepts. Here are some of the terminology that is used by the experts besides buy and sell.

  • Bull Market: You must’ve heard traders using terms like bull vs bear (bullish or bearish) market. The former simply refers to when the price of the market is continually rising, this is called bull market because of the way bulls attacks by tilting their horns upwards.
  • Bear Market: Opposite of the previously mentioned, this refers to when the price of the market is continually dropping and it is compared to when bears tear down with their claws.
  • Volatility: This is the statistical measurement of how much a stock moves up or down in the market.
  • Liquidity: The ability of a stock to be bought or sold quickly. The more the traders for a specific stock the more its liquidity.
  • Going Long: Purchasing stocks and looking to be profited by the rise in stock price.
  • Going Short: Yep, you guessed it, it’s when you buy stocks and profit from a drop in stock price.

Types of Trading Strategies

It may seem like trading simply mean, buying and then selling the position, however, there are basically four types of trading depending on your timeframe.

Trading styles

Four styles of online trading.

  • Scalping: The shortest form of trading available which is executed within minutes or even seconds in some cases. The idea behind this is that you make a minuscule amount of profits in short trades and keep on accumulating them and have a decent profit at the end of the day due to a high number of trades. High liquidy markets are ideal for scalping as it requires the perfect environment for this strategy. It can also become quite stressful very quickly, also hands-on time is required in this.
  • Day Trading/Intraday: As the name suggests, all the trades are executed within a day. This is for the individuals who prefer not to be stressed every single minute but also don’t want to hold onto positions for weeks. In this traders pay close attention to slow oscillations in the market and execute accordingly.
  • Swing Trading: In swing trading, a position is held for multiple days or up to two weeks. However, one positive aspect of this approach is that it does not require constant monitoring, while this one is the more relaxed approach some analysis is still required if one wishes to save their funds.
  • Position Trading: Completely opposite to scalping, traders who prefer this form of trading tend to sit on a position for months and even years. This is a more laid-back approach and either results in significant profit or loss and traders observe weekly or monthly market charts for this.

Examples of Online Trading

In the contemporary world, many forms of trading have flooded the internet, however, all of them have basically branched from these three.

  • Forex: Forex simply is the combined word for foreign currency and exchange, it is the process of converting one’s currency into another for various reasons and the forex market is where currencies are traded and the standard by which all currencies are measured is by the American dollar. Prior to Forex, the exchange of goods and services among nations was proving difficult as the currency of any two nations fluctuates therefore it proved to be a reliable way of exchange. Plus, this runs 5 days a week and overnight.
Forex trading

Different currencies of Forex.

  • Stock Market: Perhaps one of the oldest forms of trading that begin in the late 1800s, obviously in the past it was done offline but as soon as we entered the age of the internet it was among the first ones to go online. In this particular shares of companies are bought, sold, or exchanged depending on their market value. Unlike forex, the stock markets have a set amount of time that traders must utilize and prices are subject to change depending on the company.
Stock market

A person bidding on shares.

  • Cryptocurrency: Undoubtedly, one of the most popular ways of online trading thanks to an incredible jump in the value of bitcoin, a type of virtual coin. Unlike other markets, a cryptocurrency is a virtual form of money where more than a thousand coins are available to choose from at varied prices. From there it is similar to forex, trading, buying, and selling by looking at charts. However, two pros of this are that one can hold onto a coin that they think will rise in value and only then sell it and that it is heavenly secured and encrypted so the risk of theft is minimal.
Crypto trading

Logo of bitcoin being shown as encrypted.

The bottom line is that the world has long moved on from the traditional sense of money and pretty much everyone is either investing or trading in online markets to gain huge benefits. If you know what to do, you can also reap its benefits.

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