Trading: What does it mean? An introduction to the world of derivatives trading

This article will introduce you to trading — what does it mean? Its true meaning, how to start correctly, and ways to generate income effectively. Whether you’re a beginner investor or looking to improve your trading skills, this article provides essential fundamentals for understanding financial markets, risks, and strategies to help you make smarter decisions.

What is Trading? Buying and Selling for Profit

What does trading really mean? Trading is the activity of buying and selling various assets in financial markets with the goal of making a profit from price differences. These assets include stocks, foreign currencies, cryptocurrencies, commodities, and contracts for difference (CFDs).

In the past, trading might have been seen as complex and only for experts. But today, with technology and online platforms, trading has become accessible to the general public. All you need is an internet-connected device and basic knowledge.

The core idea of trading is to predict whether an asset’s price will go up or down. If your prediction is correct, you profit; if wrong, you may incur losses. That’s why risk management and analysis are critically important.

Key Principles Everyone Must Know About Trading

Trading isn’t just luck or guessing; it’s a science and an art that requires study, practice, and systematic analysis.

The first fundamental principle is analyzing economic factors. Traders need to stay updated on current economic conditions, inflation rates, central bank policies, and other economic data that can impact asset prices.

Second is industry analysis. Understanding trends within the industry you’re interested in is vital because changes in one industry can affect companies and assets related to it.

Third is company analysis. If investing in stocks, you should review financial reports, management quality, and growth prospects.

Professional traders combine fundamental analysis and technical analysis to form a comprehensive view of market conditions.

5 Essential Steps Before Starting to Trade

Before you begin real trading, there are five important steps to take:

1. Self-Assessment: Ask yourself, “Why do I want to trade?” What are your goals? Do you want:

• Short-term income?
• Long-term savings?
• Regular dividends?
• Wealth building for retirement?

Knowing your objectives helps you choose suitable strategies.

2. Education: Trading is a profession that requires capital and decision-making. Confidently studying is essential—read articles, take courses, watch videos, and learn from others’ experiences.

3. Learn Trading Terminology: There are many specialized terms like leverage, long position, short position, stop loss, take profit, etc. Understanding these will improve your communication and comprehension of the system.

4. Risk Management: This is the most important aspect. Decide how much loss you can tolerate and limit your investments accordingly. Usually, it’s recommended to risk no more than 1-2% of your total capital per trade.

5. Choose a Reliable Trading Platform: Key factors include:

• Regulation and licensing from reputable authorities
• Reasonable fees
• User-friendly interface
• Good customer support
• Support for your local language (e.g., Thai)

How to Choose the Right Trading Platform

Selecting a trading platform is like choosing a bank—you need a trustworthy and secure institution.

What to check:

• Licensing and regulation: Ensure the platform is authorized by agencies like ASIC (Australia), CIMA (Cayman Islands), FSC (Mauritius), or FCA (UK).
• Fees: Compare commissions, spreads, and other charges.
• User experience: The platform should be easy to use, especially for beginners.
• Customer support: Fast and effective support is essential.

Example: Mitrade

Mitrade is a popular trading platform because:

• Regulated by ASIC, CIMA, and FSC
• Minimum deposit of just $50
• Zero commission and low spreads
• Supports trading in stocks, cryptocurrencies, forex, CFDs, gold
• Free demo account with $50,000 virtual funds
• $100 bonus for new customers

Which Type of Trading Suits You Best?

Trading comes in various forms, depending on which assets you want to profit from:

Stock Trading

Definition: Buying and selling shares of publicly listed companies. You open a stock account with a broker, who executes your orders and forwards them to the stock exchange.

Can you make real profits? Yes, by choosing good stocks and holding for the right period. The stock market has a history of good long-term returns, despite short-term volatility.

Popular stocks:

Cryptocurrency Trading

Definition: Trading digital assets like Bitcoin, Ethereum, etc., which are intangible and valued based on market demand.

Common approach: Scalping — small price movements, quick buy and sell within minutes or seconds, using 1-5 minute time frames. Crypto traders often open dozens or hundreds of positions simultaneously.

Forex Trading

Definition: Foreign exchange trading involves exchanging different currencies. It’s the largest market in the world, open 24 hours (except weekends and holidays).

Popular currency pairs:

• EUR/USD
• USD/JPY
• GBP/USD
• AUD/USD
• USD/CHF

Gold Trading

Definition: Trading gold via CFDs, profiting from price increases or decreases without owning the physical gold.

CFD Trading

CFD (Contract for Difference) allows speculation on price movements of assets without owning them. Benefits include:

• Low capital requirement (leverage)
• Profit from both rising and falling markets
• High flexibility

But CFDs are high-risk; thorough study is essential before trading.

3 Main Trading Strategies and Their Differences

1. Day Trading — Short-term profit within a day

Definition: Opening and closing positions within the same day, avoiding overnight holdings.

Advantages:

• Profit from short-term volatility
• High trading volume offers more opportunities
• No overnight risk

Disadvantages:

• Higher transaction costs
• Requires focus and discipline all day
• Losses can happen quickly
• Needs high experience for consistent gains

2. Long-Term Investing

Definition: Holding positions for weeks, months, or years to benefit from long-term growth.

Advantages:

• Less stressful, fewer screen hours
• Potential for compound returns
• Lower transaction costs
• Suitable for working professionals

Disadvantages:

• Longer wait times
• Requires fundamental analysis skills
• Must tolerate market fluctuations

3. Swing Trading — Medium-term profit

Definition: Holding positions for days or weeks to catch price swings.

Advantages:

• Lower costs than day trading
• Less time-consuming
• Larger profit margins per trade

Disadvantages:

• Requires regular market monitoring
• Discipline needed to stick to plans
• Frequent trading can increase costs

Can You Make Real Profits? How to Succeed?

Yes, but with conditions:

1. Continuous Learning and Self-Development: Read articles, books, attend seminars, watch tutorials. The more knowledge you gain, the better your decision-making.

2. Practice with Demo Accounts: Use virtual funds to test strategies without risking real money. For example, Mitrade offers a free demo with $50,000 virtual funds.

3. Control Emotions: Stick to your plan; avoid impulsive decisions driven by greed or fear. Successful traders master emotional discipline.

4. Consistency and Patience: No trader wins every time. Losses are part of trading. The key is to analyze mistakes, learn, and keep going.

5. Choose a Trustworthy Broker: A good broker makes trading easier. Look for:

• Regulation and licensing
• Fair fees
• Good customer support
• Robust tools and data

Common Questions About Trading and Their Answers

1. What does trading mean? How is it different from investing?

Answer: Trading involves short-term buying and selling to profit from price changes. Investing is holding assets long-term to benefit from appreciation. Traders seek daily or hourly gains; investors focus on growth over years or decades.

2. How much capital do I need to start trading?

Answer: It depends on the platform, but generally, you can start with as little as $50–$100. Platforms like Mitrade allow small deposits. However, ensure your capital is enough to withstand potential losses and avoid risking money you can’t afford to lose.

3. Is losing money in trading illegal?

Answer: No, losing money is part of trading risks. It’s not illegal; it’s a normal aspect of market activity. The important thing is to choose regulated brokers like Mitrade.

4. Does leverage really increase profits?

Answer: Yes, but it also increases risk. Leverage allows controlling larger positions with less capital. For example, 1:100 leverage means $100 can control $10,000 worth of assets. But losses can also be magnified.

Summary: What Is Trading and Your Future

What is trading? In short, it’s buying and selling assets to generate income. Trading can be a way to build wealth, but success depends on knowledge, practice, analysis, and risk management.

Different trading styles—Day Trading, Long-Term, Swing—each have pros and cons. Find the approach that suits your personality, time availability, risk appetite, and financial goals.

Start with learning, studying, practicing on demo accounts, then gradually move to real trading with caution. Trading can lead to success or valuable lessons—depending on your planning and execution.

Investing involves risks and may not be suitable for everyone. Study carefully before starting.