Broker Reviews, Education and Strategies for Traders and Investors
For Traders and Investors
On Trading Smart you’ll find the resources you’ll need to make the right broker choices. We tested them for you so that you don’t waste your time with unreliable brokers.
We accompany you throughout your trading training, you will discover technical analysis and fundamental analysis. We then give you the best trading strategies and tips to maximize your profitability in the markets.
Online trading became popular after the 2000s with the expansion of the Internet and the proliferation of online brokers. It is an activity that has now democratized, anyone can trade on the financial market.
If you want to become a trader, it’s important to educate yourself; and that’s Trading Smart‘s mission. As professional traders with more than 10 years of experience, we give you our opinions on the best trading strategies and the best online brokers.
For this purpose, we have opened real trading accounts from the best online brokers in order to test their offers considering different criteria: the ease of use of the trading platform, the assets available, customer support, deposit and withdrawal methods, etc.
You will find all the necessary information on our broker comparison in order to make the best choices.
We will also inform you about all aspects of financial markets and trading in general by switching from traditional products such as equity markets, indices or Forex, to new products such as cryptocurrencies.
What Is Online Trading?
Online trading is simply buying and selling publicly traded assets in order to make a profit. This is done through online brokers who act as an intermediary between individuals and financial markets.
These brokers allow you to open a trading account and have access to a webtrader that is an interface that guarantees you quick and easy access to financial markets around the world.
The days when we went to the stock exchanges to trade at an auction are over.
Today, you can trade in the markets from home with your smartphone.
You can also trade in different markets: equities, Forex, indices, commodities or cryptocurrencies.
Can You Succeed as an Independent Trader?
The short answer is yes. Don’t think you need a particular degree to become an online trader.
Of course, there are professional traders who work in the market room, but others are traders for own account and are therefore totally independent.
However, please note that online trading is an activity that requires a personal and financial investment. Trading can be learnt, and your training can last several years.
It’s about first discovering all the financial markets, and then you need to look at the financial products that are best suited to your income and risk aversion.
After finding the most suitable market, further research is needed to develop a trading strategy.
What Types of Markets to Invest In?
A self-funded trader can now access all financial markets thanks to the multitudes of derivatives that have been created. So, in which markets can you trade online?
Forex is one of the most popular financial markets. This is where currency pairs are exchanged. Forex is the world’s largest financial market with an average daily trading volume of $5500 billion.
Currency pairs are bought and sold in pairs. For example, if you want to buy the U.S. dollar, you have to sell another currency, such as the euro. In this case, we will look at the EUR/USD currency pair.
Selling the EUR/USD pair is like buying the dollar against the euro. On the other hand, buying the EUR/USD is like buying the euro by selling the dollar.
Forex is the most accessible market, as it is open 24 hours a day, 5 days a week.
In addition, significant leverage is made available to you by Forex brokers, which allows you to multiply your gains, but also your losses.
The cryptocurrency market is relatively new. The first cryptocurrency, Bitcoin was created in 2009. Unlike the traditional fiduciary currency (euro, dollar, yen, etc.), cryptocurrencies are exchanged only in digital form.
These virtual currencies are based on a technology called Blockchain. They do not need the intervention of the banks, because they are exchanged directly between individuals. Cryptocurrencies are therefore not issued by banks but created through a complex process called mining.
There are now more than 1600 cryptocurrencies. They can be traded through the various cryptocurrency exchange platforms that exist.
Brokers also offer the trading of cryptocurrencies by CFDs (we will discover the CFD below). So, you can take advantage of the fluctuation in the prices of these currencies without holding them digitally.
To take advantage of Bitcoin fluctuations, you can simply buy or sell the Bitcoin CFD. The latter’s evolution closely reflects that of Bitcoin’s price. Therefore, with your Forex trading account you can also trade cryptocurrencies.
The cryptocurrency market is relatively new. Volatility is very high, so caution is required when you enter this market.
Raw materials are natural or agricultural products that we use in everyday life. The most traded commodities are listed on exchanges such as the New York Mercantile Exchange (NYMEX).
Commodity prices are governed by the law of supply and demand. Macroeconomic factors and policy decisions can also impact the commodity market.
As a private trader, the commodity market is within your reach. Derivatives allow you to speculate on commodity asset prices while taking advantage of the leverage offered by your broker.
The Stock Markets
When a business needs financing, it can use indirect financing through a bank. But it can also use private capital by issuing bonds or selling shares.
The stock is a title deed that represents a share of the company’s capital. Shareholders who own shares in the company receive dividends (or profits) if the business is profitable.
The shares of the largest companies are listed on the stock exchange. They are therefore negotiable through online broker platforms. However, thanks to derivatives, it is not necessary to hold a share to take advantage of the rise in its price.
CFDs allow you to trade on the price of a stock up and down without investing in the company in question.
a) The Indices
Indexes are indicators that represent a basket of stock market assets. It may be a group of listed shares like the CAC 40. Indexes allow you to invest in an asset group. By buying the CAC 40 for example, you are banking on the performance of the 40 values that make up it, it allows you to diversify.
When an index appreciates, it is because all the companies that make it up are in good financial health. Similarly, when an index depreciates, it is a sign that all the companies that make it up are in trouble.
This logic is nevertheless relative, because in a bull market, one can have indices that fall slightly over several days before continuing the rise.
The most popular indices are the equity indices: the SP500, the DAX and the CAC 40.
Note, however, that indices can be created from any type of asset.
Exchange Traded Funds (ETFs) function as mutual funds, but they reproduce indices. These may be equity indices, industry, or RAW materials ETFs.
Because of their advantages, ETFs are becoming more popular and are taking up more space in the capital managed by funds. ETFs allow you to diversify your portfolio by investing in a basket of assets. In addition, they have lower fees compared to some mutual funds.
Some brokers offer the trading of ETFs in the form of CFDs, thus simplifying the trading of ETFs.
Today, there are many derivatives that make it easier for us to access financial markets. Whether you are a professional or an individual, you will find the instrument best suited to your approach.
We have already talked about CFDs. What are they?
CFD stands for “Contract For Difference”. It is the most accessible financial instrument. This derivative simplifies online trading.
It is a contract between the individual trader and his broker on the evolution of an asset. If the trader is a seller, the broker is a buyer, and vice versa.
CFDs replicate the price of assets. You can find CFD stocks, CFDs of currency pairs, or even indices. On Forex, for example, the EUR/USD CFD will behave the same way as the real EUR/USD price.
Options are much more complex than CFDs. An option is a financial instrument that gives you the right to buy or sell an underlying asset at a predetermined price and for a period of time. Investors sometimes use options to mitigate the risk associated with a position already taken in the market.
Options are similar to insurance policies, when you buy a car, you take out car insurance to insure it. With an option, however, you can insure an asset (stock, index, currency, etc.).
There are two types of options: a call option called Call and a put option called Put.
c) Binary options
Despite its name, the binary option is more akin to CFD than option. The difference between CFDs and binary options is the fact that they do have any not stop loss and take profit, but they are defined by a short-term maturity and a return set by the broker.
A simple binary option can be defined as:
- EUR/USD, expiry: 5 minutes, gain: 80%, loss: 100%.
In this case, when you open a binary option to buy at 10 euros, it expires after 5 minutes. If the EUR/USD appreciated during the 5 minutes, you earn 8 euros, on the other hand, if the EUR/USD has depreciated, you lose your 10 euros initially invested.
Binary options may seem simple at first, however, they are risky products, especially since their risk-return ratios are disadvantageous.
d) Futures or futures markets
Futures allow market participants to buy or sell physical or virtual goods at a predetermined date and at a certain price, hence the expression of futures contract.
Futures are a regulated market. They allow buyers and sellers to exchange futures contracts. Futures are therefore a parallel market to the spot market.
However, futures traders are speculating up or down on the underlying assets without really resorting to futures. Futures trading offers a more professional environment with very low commissions compared to CFD trading.
Choose Your Broker Well
As a trader, you must go through online brokers to access the financial markets. There are hundreds of online brokers and most of them are unregulated.
It is important to choose your broker well. It’s good to make a profit by trading, but it’s not worth it if you can’t withdraw your winnings. We have seen in the past brokers who disappeared overnight with their clients’ funds.
On Trading Smart, we only present reliable brokers who are at least regulated by a market authority. However, some are more advantageous than others, especially in terms of commissions or other services available to customers.
Some brokers offer free online training, webinars, as well as various essential tools to trade properly. One example is the position size calculator, the economic calendar, a financial news feed, etc.
In South Africa, brokers are monitored by the FSCA. The latter ensures the protection of investors.
The organization updates its blacklist of brokers to avoid each month. But if you follow our recommendations on Trading Smart, you will avoid getting into trouble with unauthorized brokers.
Consider Spread and Commissions
Brokers charge commissions on your online trading operations. If you open many positions over a short period of time, collecting commissions can significantly reduce your winnings or increase your losses.
Therefore, you must choose well your trading strategy.
Some, on the other hand, do not levy a commission, but pay themselves from the spread. The latter is the difference between the purchase price and the selling price of an asset.
You must understand that when you want to sell an asset, you do so at its purchase price.
Conversely, when you want to buy it, you do it at its selling price, it makes sense.
The difference between the purchase price and the selling price plays in the broker’s favour. You sort of pay the spread every time you close a position that has been opened.
As we have already said, brokers must be registered with market authorities. Their role is to ensure that these financial institutions comply with financial services guidelines and requirements.
Apart from the FSCA, there are several financial market authorities around the world. The most notable in the online trading sector are:
- FCA (Financial Conduct Authority), the UK’s financial markets authority.
- NFA (National Futures Association), the U.S. regulator of the derivatives industry.
- ASIC (Australian Securities and Investments Commission), the Australian regulator.
- FSA (Financial Services Agency), Japan’s financial markets authority.
The latter regulates many international branches of brokers. Indeed, many brokers have several branches, each of which is regulated by a different organization. This allows them to comply with local laws and regulations.
Is Online Trading Risky?
Trading is a risky business. You expose yourself to markets that are unstable and prices fluctuate constantly. Several factors can cause asset prices to move abruptly.
Factors that can disrupt markets include high-impact economic news.
On Forex, for example, the publication of non-agricultural jobs in the United States, which takes place on the first Friday of each month, can result in sudden changes of several dozen pips on currency pairs in seconds.
The same behavior can also be observed after a change in interest rates by a central bank. In addition, central bank presidents can also impact the market when they speak in public.
Therefore, it is essential to follow the economic calendar so as not to be surprised by these interventions.
In the stock market, even a technical analysis combined with a thorough fundamental analysis does not guarantee the success of your next position in the market.
So, you don’t have to invest the money whose loss would upset your finances.
Nevertheless, you can mitigate the risks associated with trading by implementing a strategy of money management or risk management.
How to Manage Risk in Trading?
We help you set up your money management. These are strategies that allow you to limit risk and protect your trading capital.
Most beginners focus only on the technical part, with a strategy to enter and exit a position. However, it is equally important to know what percentage of your capital you will risk per position.
There are different types of money management strategies. Some methods are more aggressive than others, depending on your risk aversion, you will find the money management that suits you best.
Risk management relies on stop loss and take profit investments. These two elements are essential if you want to succeed in trading. Stop loss allows you to liquidate your positions when the market continues to move in the opposite direction to your prediction. It is a tool that provides protection for uncontrolled losses.
Take profit, meanwhile, closes your position when your winning goal is met. The ideal would be to place, compared to your entry point, a take profit that is further away than the stop loss. In doing so, you have a favorable risk-return ratio.
What Style of Trading to Use?
Traders generally have four trading approaches: technical analysis, fundamental analysis, automated trading and quantitative analysis.
Technical analysis focuses on the study of the history of asset prices. Technical traders only uses graphs to which he can possibly add technical indicators to simplify their analysis.
The technical analysis also studies the patterns that are repeated on the market (triangles, rectangles, bevels, etc.). Technical traders often have a short-term approach. So, they are day traders, scalpers or swing traders.
Fundamental analysis focuses on the macroeconomic aspects that can impact the market. In particular, the economic health of an industry, a country, or even a geographical area.
Fundamental analysis is the preferred tool for investors who have a long-term vision and who do position trading..
Short-term and medium-term traders can also use automated trading with Expert Advisors (EAs). These are commonly referred to as trading bots.
These are plugins that integrate with the trading platform and manage your positions or trade for you.
Quantitative analysis is the pinnacle of automated trading. It is the application of mathematics to financial markets. Quantitative analysis involves analyzing a substantial amount of market data to find a profitable trading strategy.
This trading method focuses on price history and volumes. The quant trader can also use technical indicators in his analysis. The purpose of quantitative analysis is to implement an algorithmic trading strategy.