What is online trading
Online trading involves buying and selling stocks, commodities, currency pairs, cryptocurrencies or other instruments through a trading platform or mobile app. The goal is to achieve returns that outperform buy-and-hold investments. Trading is a form of speculative investment.
While investors may be satisfied with annual returns that beat inflation, traders may seek a greater return each month. Trading profits are achieved by buying at a lower price and selling at a higher price over a relatively short period of time. The opposite is also true: trading profits can be made by selling at a higher price and buying to cover at a lower price (known as “selling short”) to make a profit in bear markets. However, please note that short selling is a high-risk online trading method because the prices of any assets can continue to rise - in theory this rise may be beyond your limits.
What's also important to know about the reality of electronic trading is that you will most often be using derivative products to speculate on price movements of the underlying asset - without owning the asset itself.
This is because financial derivatives such as CFDs track the price of the asset on which they are based. Traders who use derivatives trading never have the right to take delivery of the underlying assets, so whether you are trading a physical commodity such as gold, oil, forex, bitcoin or stocks. In comparison, if you invest, you will buy, hold and sell assets.
A “contract for difference”, or “CFD”, is an agreement to exchange the difference in the price of the underlying asset, measured from the time the contract is opened until the time it is closed.
For example, you are conducting an analysis and believe that Tesla's stock price will rise from its current level of $900. So, you trade long (open long position) with five CFDs on Tesla shares. Your forecast is correct, and you close your position when the market reaches a selling price of $975. The difference is $75.
What are the types of online trading in Saudi Arabia?
Online trading is a big and sometimes complicated world. In this context, we will explain different types of trades and markets, explore different trading strategies, and delve into the different technologies involved in electronic trading.
Online trading based on asset class
Any trader can use a variety of assets or securities to trade or speculate with. Below are the most common types of online trading based on the markets available.
1). Online stock trading
Online stock trading involves buying and selling company shares with the aim of profiting from daily and weekly changes in prices. This short-term approach is what distinguishes online stock traders from traditional stock market investors who tend to stay in it for the long term.
While buying stocks in Saudi Arabia online can bring quick gains for those who understand market movements correctly, this approach also carries the risk of significant losses. As it is possible for the fortunes of one company to rise faster than the rest of the companies in the market as a whole, but at the same time it can decline just as easily.
Online stock trading refers to the buying and selling of public company shares through a stock exchange or as over-the-counter products over the Internet.
2). Forex trading online
Forex trading is the immediate purchase of one currency and the sale of another with the aim of profiting from the difference between the floating exchange rate between the two currencies (for example, trading on the EUR/USD pair) according to the following:
Buy EUR/USD at a low price and sell at a high price when we expect the base currency (the currency on the left is EUR) to rise against the counter currency (the currency on the right is USD).
Selling high and buying low for EUR/USD when we expect the base currency (EUR) to fall against the counter currency (USD).
In either case, any Forex trader can earn an amount of money based on the difference between the opening and closing price of the trade. However, if the price moves against the trader, he will face a loss.
3). Trade commodities online
Commodities are assets that are widely traded online, such as stocks and currencies. Commodities traded online are usually classified into four main categories: metal commodities, energy commodities, agricultural commodities, livestock commodities and meat commodities.
Mineral commodities include gold, silver, platinum and copper.
Energy commodities include crude oil, natural gas, gasoline, and diesel.
Agricultural commodities include corn, soybeans, wheat, rice, cocoa, coffee, cotton, and sugar.
Livestock commodities include livestock and their derivatives such as wool and meat.
Learn more about trading commodities online
4). Trade digital currencies online
Online cryptocurrency trading refers to the process of speculating on the price movement of a cryptocurrency. Compared to the other asset classes discussed above, online cryptocurrency trading is a new concept. Cryptocurrency trading is becoming a more popular alternative to mining, which has become expensive, time-consuming and inconvenient for most people.