What is trading?

Trading is an activity associated with buying and selling assets (cryptocurrency, securities, and similar) and derivatives on the exchange. The main goal of trading is to profit from one’s operations on the exchange, that is, to either buy low and sell high, or sell high and buy low.

A trader at the exchange market can be both an ordinary person and different organizations. Trading robots can be singled out separately. These programs, written for trading operations, make deals according to the conditions prescribed in the program.

There are several styles of trading in the market:

1. Scalping is literally “scalping” every price movement. Traders who use this style mainly rely on the analysis of market volumes and the order book (a set of bids to sell and buy a particular asset with the number of lots and price).
2. Short-term — when using this style a trader opens positions for a short period of time (as a rule up to 1 day). Traders who trade in short-term mainly use technical analysis (patterns, support and resistance levels, volumes).
3. Medium-term is similar to the short term style, but the trades are opened for a period from 1 day to several weeks.
4. Long-term — long-term traders often use not only technical analysis, but fundamental analysis as well. The trades of this style are opened for the period from several weeks to several months and even years.

What is margin trading?

Margin trading is the fulfillment of trading operations at the exchange with the use of cash or other goods, provided to the trader on credit against the margin. As collateral is usually cash or other asset on the trader’s deposit. Also margin trading allows us to sell goods without having them on our account. In this case, the goods are provided to us on credit, and after we are obliged to return them to the creditor, redeeming them at the market. The advantages of this option are quite obvious:

1. Thanks to possibility to sell without having it (so-called short position), we can earn on price growth as well as on its drop.
2. Thanks to the possibility of using borrowed funds, we can make a profit even from small price movements, and significantly increase our capital. Often this option is not a pleasant addition, but a necessary and integral tool in trading, because of very low percentage price movements of some instruments.

An important element for understanding the essence of the margin trading — leverage. The leverage is a number, reflecting the ratio of the position volume on the market to the volume of its margin. Let’s look at an example:

We want to open a $50,000 position with $10,000 as collateral. In this case our leverage will be five.

Methods of market analysis

There are only two methods of market analysis — fundamental and technical.

Fundamental analysis implies studying the internal value of the asset. This method is suitable for long periods of time (a few weeks and more).

Technical analysis implies the study of three factors — price charts, trading volumes and technical indicators. Technical analysis is, first of all, a probabilistic method and is used in combination with strict risk-management system.