What is trading?

Definition of trading

Trading is the process of buying and selling assets for profit. Assets can be currencies, stocks, crypto, bonds, futures, options and other financial instruments. At first glance, the activities of traders and investors may seem similar: they both purchase assets for the purpose of making a profit. However, traders are people or companies engaged in active buying and selling of financial instruments; they make many transactions in a short period of time and seek to capitalize on short-term market fluctuations. Traders are not interested in holding assets, only in the opportunity to make money from changing quotes. For example, a trader buys BTC for $32000 and sells it for $32200, the trader's earnings from such a transaction is $200.

Investors, on the other hand, are more long-term oriented. They purchase assets with the intention of holding them for a long time. For example, an investor buys BTC for $32000 and sells it for $40000 after a few months. The investor's earnings are $8000.

A brief history of trading

It may seem that trading is a modern profession that has only recently developed, although this is not actually the case. Trading has been around for centuries. The first preconditions of trading are found in ancient Chinese and Indian sources. Trading in gold, wool, salt took place long before the appearance of money. The appearance of money simplified the trading process. During the Renaissance, the first exchanges appeared, where traders could trade with each other. One of the first exchanges is considered to be the Venetian Exchange, founded in the 13th century.

The first securities on the exchange appeared in Holland thanks to the so-called "changers" - the pioneers of brokerage. They performed the functions of bankers, providing currency exchange: they accepted it in one place and gave it to clients in another, charging their interest. The internal records of the "changers" were equal to official documents, serving as a guarantor of transactions.

Over time, in the 14th-15th century, the number of "changers" became so large that they began to hold bill fairs. This led to the emergence of the first bills of exchange - securities providing for deferred payment or payment in a predetermined period. In the 16th century, the center of exchange trading moved to London. Thomas Gresham, impressed by the experience in Holland, decided to build a special building for traders in London. So there was a place where they could conduct financial transactions, conclude deals and negotiate. It was there that the first professional community of brokers emerged.

The two stock exchanges located in Amsterdam and London not only became the basis of the exchanges we know now, but also invented many terms that are still in use today. It was there that the terms "bulls" (market participants playing up, like a bull pulling its opponent up by the horns) and "bears" (playing down, like a bear pressing down with its weight) were first used. The stock exchanges of Amsterdam and London transformed the financial markets, providing a transition from trading money to securities.

In 1771, the Vienna Stock Exchange was founded, specializing in trading government securities.

The following decades were marked by the rapid spread of exchanges around the world: in 1790, the first American Exchange was established in Philadelphia, soon followed by the New York Stock Exchange.

In 1878, the Tokyo Stock Exchange appeared, cementing the trend towards the global spread of financial markets. The Industrial Revolution led to the expansion of businesses, and stock exchanges became centers for trading stocks and bonds. Futures and options also began to be used extensively at this time.

With the development of technology in the 20th century, especially with the advent of the internet, trading became available to the general public. Internet trading changed the dynamics of the financial markets by giving investors direct access to the world's exchanges. People could now trade securities, currencies and other assets from the comfort of their homes. This made the markets more open and competitive, giving both institutional traders and individual investors the opportunity to participate in the global financial game.

With the advent of BTC in 2009, cryptocurrencies and decentralized markets provided new opportunities for trading, offering alternative forms of assets and ways to exchange without intermediaries - centralized and decentralized platforms. It was during these years that trading became available to an even wider audience.

Types of markets

Financial markets can be classified according to various criteria. The most common classification is based on the nature of the traded assets. According to this criterion, the following types of markets can be distinguished:

• Commodity markets are markets where commodities such as grains, oil, gold and other commodities are traded.
• Foreign exchange markets are markets where currencies are traded.
• Stock markets are markets where securities (stocks and bonds) are traded.
• Derivatives markets - markets where derivative financial instruments (futures, options) are traded.
• Cryptocurrency markets - market of digital assets (Bitcoin, Ethereum, etc.).

Commodity markets are among the oldest financial markets. They trade various commodities such as grains, oil, gold and other commodities. Commodity markets play an important role in the world economy because they enable the trade and distribution of goods around the world.

Foreign exchange markets are the largest financial markets in the world. Currencies (US dollar, euro, pound sterling and others) are traded in them. These markets allow for the exchange of currencies and trade between countries.

Stock markets are markets where securities are traded. Securities represent an ownership interest in a company or the debt of a company. Stock markets provide financing for companies and private investors.

Derivatives markets are markets where derivatives are traded, which are financial instruments whose value depends on the value of another asset, such as a commodity, currency or stock index.

Cryptocurrency markets - is a relatively new area of finance based on blockchain technology. Cryptocurrency markets emerged in 2009 with the creation of BTC. Since then, they have grown rapidly to become one of the most dynamic and fastest growing segments of financial markets.

Main types of trading

There are several key approaches to trading: day trading, scalping, swing trading and position trading. They differ not only in strategies, but also in the trader's activity in the market. Active mode of trading implies constant interaction with the market, execution of a large number of operations and prompt decision-making based on the current situation. In the passive mode, a trader prefers less frequent transactions, changes his position less frequently and focuses on a longer-term outlook, seeking to capitalize on long-term market trends and tendencies.
Let's take a closer look at each type of trading.

Day trading is a trading strategy in which a trader opens and closes their positions within a single trading day. The basic idea is to capitalize on short-term changes in asset prices without leaving open positions for the next day. This type of trading requires careful market monitoring and quick reactions.

Advantages of intraday trading:

• Quick results: because positions are only held for a short time, day traders can quickly see the results of their decisions.
• Risk reduction: Day traders close their positions at the end of each trading day, avoiding the risks associated with after-hours events such as news or price changes during overnight breaks, plus they don't care about long-term price fluctuations.

Disadvantages of intraday trading:

• Emotional strain: rapid price changes and the need to make real-time decisions can cause stress and emotional strain for the trader.
• Continuous monitoring: Intraday trading requires the trader to constantly monitor the market throughout the trading day, which can be difficult to combine with other responsibilities.

Scalping is a short-term strategy in which a trader makes many quick trades throughout the day in an attempt to capitalize on small price changes. These trades usually last from a few seconds to a few minutes. The goal of the scalper is to make a small profit on each trade, roughly within a few pips or percent.

Advantages of scalping:

• Quick profits: scalpers aim to extract small profits from short-term market movements, allowing them to accumulate productive trades quickly.
• Minimize risk: short time frames of trades reduce the time during which the market can turn in an unfavorable direction.
• Does not require in-depth market analysis: unlike longer-term strategies, all that matters is how the asset behaves in the here and now.

Disadvantages of scalping:

• High stress levels: scalping requires quick decision making and reaction to instantaneous changes in the market - this can increase a trader's stress levels.
• Scalping for the advanced: the strategy is complex and requires quick decision making based on short-term changes. Beginners who do not yet have sufficient experience and understanding of the market may find it difficult to successfully implement this strategy.
• Commissions: by opening many trades, the trader pays commissions to the platforms each time. He makes a small profit, but he has to give a percentage to the exchange all the time.

Swing trading - is a strategy in which a trader holds his positions in the market for several days to several weeks. Unlike day trading, swing traders do not seek to capitalize on short-term fluctuations, but instead focus on longer-term price movements. This strategy gives traders more flexibility and time to make decisions, making it more suitable for those who cannot follow the market all day long.

Benefits of swing trading:

• Time management: swing trading does not require constant market monitoring, allowing traders to do something other than monitor the market 24/7.
• Less stress: because swing traders are focused on longer term trends, they don't have the need to react to short-term market fluctuations. This can reduce stress levels and allow traders to make more informed decisions.
• Potential for big moves: these traders hunt for larger trends, which can lead to larger profits on successful trades.

Disadvantages of swing trading:

• Opposition to momentum: in some cases, a swing trading strategy may oppose the current trend or momentum, which can reduce effectiveness when compared to shorter-term trading methods.
• Dependence on market trends: because swing traders are focused on long term trends, their profitability is directly dependent on the presence of stable market movements. During periods of sideways trending or unpredictable markets, the strategy may be less effective.
• Inflexibility: in case of sudden and unexpected market events, swing traders may experience difficulties and may not be able to react as quickly as, for example, intraday traders.
• Trade duration: swing traders may wait weeks for their trade to close.

Position trading is a trading strategy in which a trader holds his position for a long period of time, measured in months. Unlike shorter-term strategies, position trading focuses on long-term market trends. A trader using a positioning strategy looks at fundamental factors such as economic indicators, political events, and structural changes in industries to determine an asset's long-term outlook. He then opens a position expecting these factors to result in a significant change in the price of the asset.

Advantages of position trading:

• Maximizing profits: position traders seek to take advantage of long-term price movements, which allows them to maximize potential profits.
• Less activity: position trading does not require constant market monitoring and multiple trades, which reduces stress levels and provides a more relaxed trading experience.
• Fewer commissions: with fewer trades, position traders can save on commissions.
• Less exposure to emotion: position trading often frees traders from the temptation to react to short-term market fluctuations, which helps avoid emotional decisions.

Disadvantages of position trading:

• Longer waiting period: position trading requires patience, as it takes a significant amount of time for profits to be realized. This can be inconvenient for those looking for quick results.
• More experience and knowledge: position trading requires more experience and knowledge than other types of trading. A trader must be able to analyze fundamental and technical factors in order to make informed decisions about buying or selling assets.

Thus, trading is suitable for everyone who wants to learn it, but you just need to choose the most suitable strategy and follow it. The markets offer everyone the opportunity to make money, the only important thing is to determine the most appropriate approach for you.

How to become a trader?

Every trader's path is different, but the following steps are followed by everyone who wants to earn on the difference of asset quotes:

Market Selection - The first thing you will face is choosing the market you want to trade on: stock market, forex (currency) market, crypto market and others. A stock market trader is different from a cryptocurrency trader. If you have a limited budget, starting with the crypto market may be the best option, as you can start trading crypto with $100 on your balance, trading stocks with such a budget may be much more difficult.
The choice depends on your interests, financial capacity and risk tolerance. However, in fact, you can not limit yourself to one market: if you are interested in both forex and crypto, for example, you can be a participant of several markets at once. Once you have chosen a market, you can study its features in more detail and proceed to the next stage - choosing a trading platform.

Choosing a platform. Once you have decided on a market, the next important step is to choose a trading platform. This is the trading platform on which you will open your trades. There are many trading platforms on the market and the choice depends on your preferences. For Forex, for example, the popular platforms are MetaTrader 4 and MetaTrader 5.
For cryptocurrency trading, you can choose the WhiteBIT exchange, for example. It is important to make sure that the platform you choose is reliable, provides quick access to the market and provides the necessary analytical tools. You can also look into the commissions that a particular exchange charges for opening/closing a transaction, as they may vary from one platform to another.

Training - Once you have decided on a market and chosen a platform, it is time to learn the basics of trading. Training plays a key role in building a successful trader, as without knowledge, trading turns into gambling. Research the market, learn trading strategies and the basics of analysis. There are many sources, books and resources to help you deepen your knowledge.
It's also important to be in the right environment with experienced traders - it's always easier to move with the community than on your own, as this way you can avoid making expensive mistakes. Cryptology offer a completely free Base Camp course for all aspiring traders - there you will learn the basics of how markets work and how to work on them, as well as get basic trading knowledge and start developing your own trading strategy. Remember that trading is a constant learning process, and successful traders always stay up-to-date with the news and market analytics.

Writing a trading strategy and keeping a trading journal. A trading strategy is your clear plan of action in the market. It includes your goals, risks, methods of analysis and specific steps for decision making. Creating a strategy requires careful market analysis, determining your trading style (e.g. day trading, swing trading, etc.) and setting clear rules for entry, exit and risk management. It is a document that will guide you as you trade and help you maintain discipline. By putting together a strategy, you have a framework for your trading that will help you stay focused in any market conditions.
You can read more about what a trading strategy is and how to make one in our article on this topic.

In addition, it is extremely important to keep a trading journal - a document in which the trader enters all his trades and describes the reasons for their opening and results. A trading journal allows a trader to analyze his previous trades. Analyzing past trades helps to identify the strengths and weaknesses of his trading strategy. Analyzing past trades allows you to understand what led to losses and avoid repeating such mistakes in the future. In addition, a trading journal also allows a trader to evaluate his results and track his progress over time. This helps to understand how successful a particular strategy is and what changes need to be made to improve results.

First steps in trading - Before investing real money, it is recommended to hone your skills by trading on "paper" or a demo account. A demo account is a platform or feature built into a real stock exchange that allows you to trade under real market conditions, but without the risk of losing real money. It's a great way to test your strategies, improve your skills and get used to the psychology of trading without the financial pressure.

However, it is also not recommended to stay on a demo account for a long time: it is much more effective to try your skills with real money, starting with a small deposit or demo account. Only real trading allows a trader to gain practical experience with real market conditions. In addition, real money traders are more attentive to risk management and learn to make responsible decisions about position size and stop losses. Trading with real money also creates an emotional and psychological strain that is not available on demo accounts. This allows traders to more accurately assess their reactions to market changes and emotional stresses, which is an important part of trader's psychology - you can learn more about the psychological component of trading in this material.

Another important step is to conduct backtests - testing a trading strategy on historical data to evaluate its effectiveness and profitability. During a backtest, a trader studies historical data of price movements in the market and applies his trading strategy to this data. He then analyzes the results to evaluate how the strategy behaves under different market conditions and draws conclusions about its effectiveness.

Transition to informed trading. After successfully practicing your skills on a demo account or a small deposit, it is time to move on to full volume trading. Always remember to control your risks, start with smaller amounts and gradually increase the volume of trades as your experience and confidence grows.

Also, be sure to keep learning: start with the basics at our Base Camp where we will share our experience and proven knowledge with you, we are ready to take you from zero to advanced knowledge so you understand how markets work, how not to lose and most importantly how to profit.

Trader's Tools

Opening trades on a whim or solely on someone else's recommendation is not recommended at all, every trader looks at the market subjectively, that's why a trade opened by another trader may not work for you, because you may look at the market in a different way. In order to determine what position you want to open and when you want to open it, you should use the following tools:

Analytics platform. One of the most common platforms for building your BIAS (bias) about the market situation is TradingView. TradingView is a web-based platform for analyzing financial markets. It provides a wide range of tools for technical analysis, creating charts, analyzing data, and sharing opinions with other traders. TradingView allows users to create and publish charts with various financial instruments, apply technical indicators, and follow news and market analysis. It is on this platform that you can put all your thoughts on the chart using the tools that are presented there. TradingView offers multiple charts that work using real-time data, over 100 indicators and over 50 smart drawing tools (and no, not like Paint), price movement alerts and much more. This platform is a must-have for every trader who wants to succeed in this business.

Economic Calendar. The economic calendar is an indispensable tool for the trader, providing information on upcoming events that may affect the market. It displays key economic indicators, news and events such as central bank decisions, employment reports, inflation data and other factors that can cause fluctuations in the financial markets. Following the economic calendar helps traders adapt their strategies to expected changes and minimize risks.

Indicators. Indicators are an important component of a trader's arsenal, providing additional information about price movements and trading volumes. They help to identify trends, periods of overbought or oversold assets, as well as other key moments in the market. The most popular indicators are moving averages, relative strength indicator, stochastic oscillator, RSI and many others. Indicators are auxiliary tools for a trader, they can be a part of a strategy, but it is not necessary. Our team has developed our own indicators that help traders to save time when analyzing.

News. News sources are a very important tool. Various financial news, economic events, regulation and company announcements can significantly affect the market. Traders use news portals to stay informed about events that can affect their trading decisions. For example, as soon as Tesla released the news that they now accept payment in BTC, the price of the asset instantly rose.

Tradingvolumes. Trading volumes are another important tool for traders. They reflect the number of assets bought or sold over a certain period of time. Analyzing volumes helps to assess the strength or weakness of the current trend, as well as to identify potential market reversal points. Some traders use volumes to confirm the signals of other indicators and make decisions on entering or exiting trades.

This is not the whole list of tools that can help a trader in price forecasting, but they are the key ones.

Psychology of trading

Psychology, risk management and only then chart analysis - this is the order of key components for successful trading. Here psychology acts as a regulator of emotions, allowing the trader to keep cool and analyze the situation thoughtfully. Fear and greed are the key emotions that can be traced in the financial markets.

Remember the Stanford marshmallow experiment? Where kids were left alone with a marshmallow and a promise to get an extra one if they held back from the first one. Most of the kids, of course, couldn't resist the temptation and ate the marshmallow. This is reminiscent of the way newbies in trading give in to their first profit and close the trade without patience until the target level is reached. This is essentially the behavior of children in an experiment. When a potential loss appears, other patterns begin. Beginners hope that the market will change in their favor and leave the loss to grow. It's like expecting a marshmallow that's already in your mouth to suddenly turn into two. The experiment hints at the importance of training yourself to act against your instincts and emotions, which in trading often means drastically changing your thinking and strategies.

Fear, in turn, can "paralyze" and cause one to miss profitable opportunities due to fear of loss. On the other hand, greed can beckon to high risks and lead to unwise decisions in search of quick profits. These emotions are often interconnected, creating a cycle that affects a trader's decision making. Fear is reinforced by losses, and greed can arise after successful trades. It is important to learn how to manage these emotions to keep your cool in any market situation. Trader and trading psychology directly affects your performance and success in the market.

Risk Management

You can be a first-class market reader, but if you don't learn risk management, you will lose everything.

Risk management is a key tool to ensure a trader's financial security, prevent catastrophic losses and maintain emotional stability.

By defining clear loss limits and risk management strategies, traders build a solid foundation for successful trading where rational decisions override emotional reactions, ensuring long-term stability and effective risk/return management. In order to avoid losing all or a significant portion of your capital when holding trades, stop losses should be utilized.

Stop-loss is a mechanism in trading designed to minimize trader's losses. It is a pre-set price level, when reached, the open position is automatically closed, preventing further losses. Stop loss is a very important element of risk management strategy, allowing the trader to control his losses in case of unfavorable market movements. This tool is designed to protect capital and provide a balance between risk and potential profit, making trading more stable and predictable.

Determining the maximum level of risk per trade is an important part of risk management. This means that a trader determines the maximum amount he is willing to lose in the event of a failed trade. For example, if a trader has a capital of $10,000 and sets the maximum risk per trade at 2%, the maximum loss per trade will not exceed $200. This is what a stop loss is used for.

Also important in risk management is the use of fixed percentages of capital to trade: a trader decides to trade a certain percentage of his capital in each trade. For example, if he has $10,000 and he sets a fixed percentage at 3%, the size of each trade will be $300. This strategy helps spread the risk more evenly across different amounts of capital. Depending on the asset, market conditions, and the trader's confidence in the set-up, this percentage can vary.

Where to start your way in the world of trading?

It is very important at the beginning of your trading career to get into the right environment. Experienced traders from the community will help you to minimize possible mistakes and increase your chances of success without making your own bumps. In addition, you should get involved in the information space, because just looking at the charts is not enough, it is very important to be "on topic" all the time.

At first it may seem difficult, you can remind yourself to follow the news, reports and events, but in a few months you will not be able to remember what it is like to wake up and not look at the first thing on asset quotes or read news from the world of finance. Subscribe to our channels in order to always be aware of the most important information directly affecting the markets (P.S. there we provide not only informational materials, but also analytics from traders and experts).

We offer you to ease your way into the world of trading and start it with our Base Camp - a free mini-course on trading for beginners. At Base Camp, we give you access to the proven knowledge and experience of our experts. During Base Camp you will get access to 5 free video lessons, 2 hands-on broadcasts to practice what you've learned, and the opportunity to ask questions in a Q&A session with Kostya Kudo, an experienced trader and educator. Base Camp is your starter pack of knowledge and tools for successful development in this field.

Trading for beginners: recommendations of the CRYPTOLOGY team

Markets offer opportunities to earn money every day. Trading is an opportunity to work for yourself from anywhere in the world, but to succeed in trading it is important to follow a few key recommendations.

First, start by educating yourself. Immerse yourself in the basics of the market, learn the different strategies and master the terminology. Trading without knowledge is a game of chance, where you can earn $500 today and lose your entire deposit tomorrow.

Secondly, define your financial goals and risks. Observance of risk management is a key point for successful trading, working without stop-loss and opening deals "on the whole cutlet" is a direct way to losses. Practice on a demo account before entering real trading - it will help you to master the psychology of the market without the risk of losses, sharpen your skills and test the effectiveness of your trading strategy.

Also, if you are just starting out, we recommend starting with small amounts and gradually increasing the volume of trades as you gain experience. One more important point: do not let emotions influence your decisions, be patient and consistent in your approach.
Successful trading takes time and effort to master, but with the right approach and training, you will be able to develop your skills and achieve success. If you want to learn more about how to play and win in the stock market, get tools and mentorship from experienced traders, Cryptology Trading School invites you to start the journey together!