Trading is the act of buying and selling securities for the purposes of making a profit. For many novice traders, the idea of trading seems a bit daunting and mysterious. Like anything in life, if one is able to break down a complex process into smaller components it will be much easier to understand. Trading is definitely not an exception to this rule. Here is an easy guide to understanding the different types of trading.
Weekly Trading
Weekly trading is a style of trading in which positions are closed at the end of each week. As a result, positions typically last from Monday through Friday. In order to get started with weekly trading, you must have access to online trading accounts and the ability to make your own trade orders from home or work. Keep in mind that many trades can go against you quickly, so you should have a stop-loss order in place on any position you open. Going with trading weekly options is best for traders who want the maximum number of trading opportunities per week. One major advantage to weekly trading is that it allows one to keep their full-time jobs while still being able to earn profits from the market on a part-time basis.
Day Trading
Day trading typically involves making multiple trades per day and holding positions for less than a day. Day trading is an active style of trading in which the trader actively manages their positions throughout the entire trading session (typically from 9:30 AM EST to 4 PM EST). Keep in mind that it requires you to be constantly monitoring your open positions to ensure they remain profitable. Day trading is not a style of trading for the casual investor. One major advantage to day trading is that it allows you to take advantage of intraday market movements, which can result in substantial profits quickly. The downside to this style of trading is that the majority of day trades will end up as losing trades.
Scalping
Scalping is a style of trading in which the trader looks for very short-term profits (typically 1-2 cents per trade). The goal with scalping is to capture as many small, quick profits as possible. Keep in mind that you should always use a stop-loss order in any position you open. Doing so will prevent you from being stopped out by normal market volatility. Scalping is a great style of trading for the beginning investor who wants to get started quickly with very little upfront capital. This style of trading requires no extra time beyond what it takes to monitor your trades, so it’s perfect for those who want to trade part-time while still earning profits.
Multi-Day Trading
Multi-day trading is a style of trading in which the trader makes trades for multiple days but still closes all positions by the end of each day. Most professional traders use this style of trading because it allows them to take advantage of intraday market movements while still closing out their positions before the end of each session. Keep in mind that with multi-day trading, you will need to have a substantial amount of money set aside for trading capital so that you can maintain a diversified portfolio at all times. One major advantage to multi-day trading is that it allows the trader to capture multiple days worth of market movement, which results in higher profit percentages for each winning trade. The downside to this style of trading is that it requires a significant amount of money to enter the market on each position, so it’s best saved for traders who have a substantial amount of funds they can afford to lose if their positions move against them.
Option Trading
Options trading is when an investor trades options contracts instead of stocks. Options trading is a great way to diversify your portfolio because you can trade the market without buying the actual stock. There are 2 types of options trades: calls and puts. A call is an option that gives the owner the right, but not the obligation, to purchase 100 shares of the underlying security at a predetermined strike price by predetermined expiration date. A put is an option that gives the owner the right, but not the obligation, to sell 100 shares of the underlying security at a predetermined strike price by predetermined expiration date.
Long Calls/Covered Calls
A long call is when you buy a call without owning the underlying asset or having put up any margin. This is generally considered a leveraged investment because you are trading only the call option (profit/loss potential without owning stock). A long call can be helpful if you feel that the market will make a quick movement to the upside in the near future. Just keep in mind that you stand to gain 100% of your initial investment, but you also stand to lose 100% of your initial investment.
Trading is a great way for anyone to make money online. Just remember that there is no one-size-fits-all type of trading, so it’s important to familiarize yourself with each style of trading before you start making real trades. It will take some time to find the style of trading that works best for your skills and abilities, but once you do, you’ll be well on your way to making money as a trader.
