Investing is the process of putting money into assets like stocks, bonds, or property with the goal of growing your wealth over time. Rather than simply saving money in a bank account where it earns little interest, investing gives you the chance to purchase assets that can increase in value or provide income.
While there is some risk involved and your investments may lose value, careful research and a long-term approach can help you reach financial goals like retirement, buying a home, or building a financial safety net.
Trading is the act of buying and selling financial assets, such as stocks, currencies, or commodities, with the goal of making a profit. Unlike long-term investing, which focuses on holding assets for years, trading typically involves shorter timeframes, sometimes hours, days, or weeks.
Traders try to take advantage of price changes in the market, buying when prices are low and selling when they go up. While trading can offer quick gains, it also comes with risks, as prices can move unpredictably.
Options trading is a type of trading where you buy and sell contracts called "options" rather than the actual asset, such as stocks. An option gives you the right, but not the obligation, to buy or sell an asset at a specific price (called the "strike price") before a certain date (the "expiration date").
Traders use options to profit from price changes without having to own the underlying asset. However, options can be complex and risky, so they require a good understanding of how they work.
Spread betting is a type of financial trading where you bet on the price movement of an asset, such as a stock, index, or currency, without actually owning the asset. Instead of buying or selling the asset itself, you predict whether the price will go up or down.
Your profit or loss depends on how much the asset's price moves in the direction you predicted. The more it moves in your favour, the more you can gain. However, if the price moves against your prediction, your losses can also increase.
One key feature of spread betting is that it's often tax-free in some countries, like the UK, since it's considered a form of betting rather than investing. However, it's important to remember that spread betting is high-risk, and you can lose more than your initial stake if the market moves sharply in the wrong direction.
CFDs (Contracts for Difference) are financial instruments that allow you to trade on the price movements of assets, such as stocks, commodities, or indices, without owning the underlying asset. When you trade a CFD, you agree to exchange the difference in the asset's price from the time you open the contract to when you close it.
If the market moves in your favour, you earn a profit based on the price difference. If it moves against you, you incur a loss. CFDs also allow for leverage, meaning you can control a larger position with a smaller amount of capital, but this can magnify both gains and losses.
CFDs are commonly used by traders for short-term strategies, and they offer the flexibility to trade across a wide range of global markets. However, they can be risky, as losses can exceed your initial investment due to leverage.
Leverage is a tool in trading and investing that allows you to control a larger position in the market with a smaller amount of your own money. Essentially, leverage is borrowed capital from your broker that amplifies your potential profit—but also your risk of loss.
This means that a small price movement can lead to a larger gain, or a larger loss. While leverage can maximise returns if the market moves in your favour, it also increases the risk, as losses can exceed your initial deposit. Leverage is commonly used in markets like forex, CFDs, and futures, but it's essential to use it with caution.
Volatility refers to the degree of variation in the price of a financial asset, such as a stock, currency, or commodity, over a specific period. In simpler terms, it's a measure of how much and how quickly an asset's price moves up or down.
Investors and traders often watch volatility closely, as it affects both the potential profit and the risk level of trades. The Volatility Index (VIX), for example, is widely used to gauge market volatility and is sometimes called the "fear gauge" for markets.
A market order is an instruction to buy or sell a financial asset (such as a stock or currency) immediately at the best available current price. Because it prioritises speed over price precision, a market order is typically used when an investor wants to enter or exit a position quickly, regardless of slight price fluctuations.
While market orders are almost always filled right away, they don't guarantee the exact price you see when you place the order. For highly liquid assets, this difference (known as "slippage") is usually minimal, but for less liquid assets, prices can vary more.
A limit order is an instruction to buy or sell a financial asset at a specific price or better. Unlike a market order, which executes immediately at the current price, a limit order only executes when the asset reaches the price you set or a more favourable price.
Limit orders give you more control over the price at which you buy or sell, making them useful when you want to avoid slippage or wait for a specific price. However, there's no guarantee the order will be filled, especially if the market doesn't reach your desired price.
A stop order is an instruction to buy or sell a financial asset once it reaches a specific price, known as the "stop price." Stop orders are commonly used to limit potential losses or protect profits by automating a trade if the price moves unfavourably or favourably.
Stop orders offer a way to automate trades and manage risk, but in fast-moving or less liquid markets, the final execution price can sometimes differ from the stop price due to slippage.
A stop-limit order is a combination of a stop order and a limit order, allowing you to control both the activation price and the execution price of a trade. A stop-limit order triggers a limit order once an asset reaches the "stop price," but it will only execute if it can do so at the "limit price" (or better) you specify. This order type helps you set stricter price conditions, but it may not execute if the price moves past the limit before the order can be filled.
While stop-limit orders allow for better price control, there's no guarantee of execution if the asset's price moves too quickly past the limit, especially in volatile markets.