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Trading can be an exciting way to earn an additional income. However, before you start trading you need to learn a few things. Knowing what to expect, what tools you need, and a few techniques will help prepare you so your entry into trading is as smooth as possible. The following things need to be considered before you start trading:

1. Getting to know the market

Traders can trade within many different markets which include the stock market, forex market, options market, and Contract for Difference (CFD) markets.

The stock market involves buying/selling shares of a company. The forex market is the largest market in the world and involves the exchange of one currency for another. The options market allows participants to undertake positions in the derivative of an asset, so the option is not ownership of an underlying asset. The contract for difference (CFD) market allows traders to speculate on the rising or falling prices of instruments such as currencies, shares, indices, and commodities.

When a market is moving downwards, it’s called a bear market. You can take advantage of this through ’short selling’ which involves selling assets or (derivative) you do not own in the hope of buying them back at a lower price in the future. The difference is your profit.

Short selling can be very risky as your losses are unlimited and you could lose more money than you actually have in your trading account. This is because the shares could rise so you would have to cover the difference. Therefore, short selling is not advisable for novice traders.

 

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Things You Must Understand Before Beginning to Trade

In recent years, trading has grown more accessible, drawing newcomers hoping to increase their wealth or make extra money. Anyone can explore the world of financial markets with just a computer and an internet connection. However, there are some crucial things you must comprehend before you hit the "buy" or "sell" buttons. Trading requires strategy, knowledge, and preparation in addition to luck.
Knowing the Markets
Aspiring traders should first become acquainted with the different markets that are accessible. They all function differently and have varying degrees of risk and complexity.

The most well-known to the general public is probably the stock market. You purchase and sell shares of publicly traded companies when you trade on the stock market. Buying low and selling high is the aim. News, company performance, and general economic indicators all have an impact on stock trading.

Forex Market: With a daily trading volume of over $6 trillion, the foreign exchange, also known as the forex or FX, market is the biggest financial market globally. Here, traders try to take advantage of fluctuations in exchange rates by exchanging one currency for another. Because of its substantial liquidity and
The market for options deals with derivatives, which are financial agreements whose value is derived from an underlying asset. An option grants the buyer the right, but not the responsibility, to purchase or sell an asset at a fixed price. It's best to approach options trading after gaining some experience in simpler markets because it can be complicated.

CFD Market: Without actually owning assets, traders can make predictions about their price movements by using Contracts for Difference (CFDs). This covers indices, currencies, commodities, and stocks. Although using leverage increases risk, CFDs are popular for short-term trades.