Introduction:-

This article will serve as an introduction for those who want to learn trading, especially since learning to trade has become easier than ever.Technological advancements have provided individuals with the opportunity to access financial markets, with the rise of electronic trading and the innovation of trading platforms and software. Therefore, let’s explain in this article what trading is.

The article will cover the following points: -

1.   The meaning of trading

2.   Types of trading

3.   Types of analysis in trading

4.   Risks in trading

5.   How to manage risks in trading

1- Meaning of Trading :-

It is the exchange of one thing for another. Usually, when the term "trading" is used to describe something, we immediately understand that the item is being exchanged for money, or in other words, it involves buying something from one person and selling it to another. Trade is fundamentally based on supply and demand in general, where the value of the item a person or group wants to exchange depends on changes in supply and demand. An increase in demand for a product or financial asset means that a large number of people are willing to pay the price to "buy" it, and therefore, an increase in demand will lead to an increase in its price or cost due to the need of many people.

A simple example of trading :-

Let’s assume you went to the mall to buy something, for example, a jacket, and you are going to pay money for it. In this case, we can say that you have conducted a trading transaction, as you exchanged money for the jacket.

2- Types of trading :-

There are many financial markets in which trading takes place, including:
Forex, cryptocurrencies, stocks, indices, and commodities.

·        Foreign Exchange Market (Forex) :-

The concept of trading – exchanging one thing for another – is applied in the foreign exchange market, where one currency is exchanged for another. If the price of the purchased currency rises, the trader can make a profit by selling it at a higher price, and vice versa.

A simple example of Forex :-

Let's assume you are living in the United States and decide to go on a recreational trip to Germany. In this case, you will need the euro currency to be able to exchange money there. Before traveling, you will go to the exchange office in the United States to trade US dollars for euros. Let’s assume the exchange rate of the US dollar to the euro is 2 euros for 1 US dollar. This means that if you buy 1 euro, you will pay 2 US dollars for it.

You then went to buy 1,000 euros, which is equivalent to 2,000 US dollars. Later, let’s assume that you were unable to travel, and some time passed. You noticed that the value of the euro had risen against the US dollar and was now worth 3 US dollars per euro. This means that if you sell the 1,000 euros you have, you will receive 3,000 US dollars in return. In this case, you made an additional profit of 1,000 US dollars. Simply put, this is the meaning of Forex.

Cryptocurrencies :-

Cryptocurrencies are virtual currencies that are bought when their prices are low, and traders sell them when their prices rise, such as Bitcoin, Ethereum, and other cryptocurrencies.

A simple example of cryptocurrencies :-

Let’s assume that Bitcoin was priced at $1,000 (just for simplicity). You decided to buy it. After some time, you sold it and were surprised to find that its price had risen to $2,500. In this case, you made a profit of $1,500.

·        Stocks :-

Stocks are similar to cryptocurrencies. When I buy a stock in a certain company, for example, Amazon’s stock, and I believe that the company will make profits in the future, I am investing in that company and becoming a partial owner of it.

A simple example of stocks :-

Let’s assume I bought Amazon stock at a price of $10. I waited for some time until the stock price rose based on my analysis of the company’s performance. Indeed, the stock price rose to $15. At this point, I made a profit of $5.

·        Indices :-

Indices are a measure of the performance of a group of stocks from the stock exchange. For example, the NASDAQ index. You can speculate on whether the index prices will rise or fall without owning the underlying asset through Contracts for Difference (CFDs).

Commodities:-

The commodities market includes essential commodities like wheat, sugar, silver, gold, and oil. Commodities are traded in the form of spot contracts or futures contracts. The trading principle is applied when buying a commodity contract in hopes that its price will rise in the future, or selling a commodity contract in hopes that its price will fall, which is known as speculation on commodity prices through CFD trading.

A simple example of commodities :-

Let’s assume you bought gold at a price of $2,000 per ounce. After a week, the price increased to $2,100. In this case, you made a profit of $100. But remember, you didn’t actually buy the gold. You traded on the price difference, meaning you didn’t need $2,000 to buy the ounce. You entered the trade based on the change in price.

3- Types of analysis in trading :-

To achieve success in trading, it is essential to rely on well-studied analyses to ensure greater success and minimize risks. Among these analyses, there are technical analysis and fundamental analysis.

·        Technical Analysis :-

This relies on analyzing price movements using charts and technical indicators, which provides us with well-defined opportunities to enter trades.

• Fundamental Analysis :-

This relies on studying the economic factors that may affect the value of assets, such as economic reports and global news.

4- Risks in trading :-

Beginner traders are exposed to certain risks at the beginning of their trading journey, such as market risks, overtrading, and psychological risks. Therefore, traders must learn how to overcome these risks.

·        Market Risk :-

This refers to the risks associated with market fluctuations. Economic news and geopolitical events can impact prices, increasing the risks.

·        Overtrading :-

Overtrading occurs when traders engage in an excessive number of buy and sell trades. This often happens as a result of trades made without awareness or a clear plan, which is a common mistake among traders.

·        Psychological Risks :-

Emotions such as greed and fear can influence traders' decisions, leading to costly mistakes.

5: How to manage risks in trading :-

To become a successful trader, risk management must be a fundamental part of your plan to ensure the success of your strategy. Some of the most important methods of risk management include:

·        Using Stop Orders :-

These are orders placed in advance to minimize losses if the price moves against the expected direction.

·        Combining Analyses :-

If traders manage to combine both technical and fundamental analysis, this will reduce the likelihood of a trade failing.

·        Diversifying the Portfolio :-

It is advisable for traders not to trade with just one financial instrument. It is better to spread their capital across multiple instruments to reduce risks.

Conclusion :-

Trading is considered one of the vital financial activities that offer significant profit opportunities. However, at the same time, it involves high risk. Therefore, traders must develop their skills in both technical and fundamental analysis, in addition to using capital management strategies to reduce risks.