Classification of types of trading on the exchange
Classification of types of trading on exchanges is made for various reasons:
- By type of exchange
- By terms of trade
- On the use of robots
Let us carefully consider each type of trade, depending on the indicated grounds.
In the world there are about 1.5 million traders on the Forex currency exchange. The fact is that rather stringent requirements are imposed for trading on currency exchanges and all currency exchanges are under the scrutiny of regulators, so most traders trade on the Forex currency exchange through intermediary companies called Forex brokers.
Brokers have special licenses issued by regulators, which give them the opportunity to act as trading floors and provide traders with access to the Forex market. Regulators monitor the activities of brokers and control that there are no speculations, various frauds and illegal activities on the exchanges.
Brokers must comply with anti-money laundering legislation, closely monitor the operations of traders, and carry out mandatory verification of traders. If traders ’transactions are suspicious, then brokers have the right to block them, as well as block money on traders’ accounts.
At the request of the tax authorities, brokers provide financial information about traders and report to the tax authorities about all major transactions, and brokers also report suspicious transactions to traders in compliance with anti-money laundering legislation.
Licenses for brokerage are very expensive and broker companies carefully comply with all the requirements of regulators.
Stock exchange trading
There are even fewer traders trading on the stock exchange. There are about 1 million people. This is explained by the fact that the regulator imposes even more stringent requirements on stock exchanges. As well as in the case of trading on the foreign exchange market, trading on the stock exchange is carried out through a broker company.
The most reliable and trusted brokers can simultaneously have licenses both for trading in the Forex market and in the stock market. They give traders access to the stock and forex markets. Therefore, one trader can simultaneously trade both in the currency and stock markets and do this through one intermediary – a broker.
In the stock market, the real purchase of assets of enterprises, the purchase and sale of various securities, security obligations is carried out. The fate of a company often depends on the actions of traders. Therefore, very strict requirements are imposed on stock market brokers so that there are no frauds, raider seizures of the business and various violations of the law.
Very serious requirements are imposed on the traders themselves and the size of their deposits. This explains the fact that the number of stock market traders is less than traders who trade on Forex.
On the other hand, experts often advise starting to trade from the stock market, since the laws are more stringent there than in the Forex market, the rules are more clearly regulated and it is much more difficult to drain a deposit than in the Forex market. But for trading on the stock market, more stringent requirements are imposed on both the size of the deposit and the identity of the trader.
More than 10 million traders are trading on the cryptocurrency market. No one can calculate the exact number of traders. The thing is that cryptocurrencies are anonymous in nature and many traders have accounts on 10 or more exchanges. A trader can have several accounts on one exchange.
In most jurisdictions, no license is required for cryptocurrency exchanges. Traders can trade cryptocurrency directly through exchanges, bypassing intermediary brokers. There are no requirements for traders.
Typically, verification is needed only if the trader exchanges cryptocurrency for fiat, or if the trader trades on the stock exchange in large volumes. But this limitation is easily bypassed by the presence of several trading accounts on the exchange. Cryptocurrency exchanges also do not have any requirements for the size of the deposit. Many cryptocurrency exchanges suffer from a lack of liquidity.
If experts recommend that newcomers begin trading not with the currency market, but with the stock market, since the stock market is more in order and it is much more difficult to merge your deposit on the stock market than in the currency market, where most newcomers lose money, then it’s much easier to start trading with the cryptocurrency market Riskier than with classic Forex.
Despite the apparent simplicity and democracy of the cryptocurrency market, trading on it is the most risky. The thing is that during the day the price of some cryptocurrencies can change by 50% or even more. Thus, your deposit can both grow quickly and sag instantly. Moreover, the chances of losing money in the cryptocurrency market are much greater than increasing them.
Since there is practically no licensing on the cryptocurrency market, speculation and various kinds of fraud flourish on many exchanges. Some exchanges are struggling with this, but most of them do not pay attention to violations. A beginner may fall under the tricks of fraud traders or, under the pretext of combating fraud, his account may be blocked by the exchange itself.
Experienced fraud traders know how to circumvent exchange restrictions. Beginners have no experience, chasing a large profit, a beginner may make a mistake and his account may be blocked.
Each cryptocurrency exchange has its own characteristics and limitations and they need to be understood. Not surprisingly, in the cryptocurrency market, so many newcomers are losing their money. And cryptocurrency exchanges are sometimes hacked. And this happens with stable regularity.
Classification of types of trade by terms of trade
Depending on the chosen strategy, the trader by the timing of trade distinguishes:
- Intraday trading;
- Positional trading;
- Investment trading.
Scalping is a short-term trading strategy in which a trader opens dozens, if not hundreds of deals during the day, trading mainly according to a clearly defined trend. As soon as the price of an open position grows minimally, so that the trader can fix his profit, he sells the asset and closes the deal. That is, the trader does not wait for the maximum price peak. It is important for him only to fix his profit, so that the price increase for the position could compensate for the costs of the trader on the commission to the broker. As soon as the minimum profit is reached, the trader fixes it and closes the deal.
This strategy is very profitable for exchanges, as due to the constant opening and closing of positions, large turnover of trade is growing. But this strategy completely exhausts the trader, as he must simultaneously open several positions and monitor changes in prices.
As soon as profit is achieved, the position is closed so that there are funds in circulation to open new positions. With this strategy, a tremendous amount of time is spent on trade, profit and deposit increase are carried out only due to the large cash flow. The trader pays large sums to the broker for commissions because of a significant turnover of funds, and his income is minimal. That is, the broker benefits from this strategy more than the trader himself.
The duration of the transaction when scalping from several minutes to several hours. To make money on scalping, you need a large turnover of funds, which is achieved by an impressive number of transactions, which can be completed from 10 to 100 pieces per day. For this, the trader is forced to tear off several positions at the same time and constantly monitor the dynamics of prices.
Unlike scalping, where special technical analysis is not required and the main thing for a trader is to find an asset with the most pronounced price movement, a trader should be able to use technical analysis tools and indicators for intraday trading.
For successful trading, a trader must have some experience in order to correctly choose a position for trading and be able to apply technical analysis tools and indicators for this position. On one-day terms, technical analysis tools work relatively clearly if they can be applied correctly.
The more tools are in the trader’s arsenal, the more experience he has, the more successful he is. Usually within a day the trader opens up to 10 positions and monitors them. In intraday trading, the profit from transactions is usually higher than with scalping, trading volumes are less, as well as the number of transactions.
The expenses of traders on commissions to brokers are lower than when trading with the scalping method. But it all depends on the amount of transactions. If a trader makes deals in large amounts and he confidently uses technical analysis tools, then his income is high.
With a small deposit and small transaction amounts, the income from intraday trading is minimal. To make money in this way you need to have a sufficiently large deposit and experience in using trading tools.
If during intraday trading, the trader only needs to understand the technical analysis tools and be able to apply them in practice, then in position trading, the trader needs a wide range of knowledge, the ability to analyze assets and be able to predict the movement of the price of the asset.
The trader must understand the assets, know the market well, read the news and be able to analyze them in order to predict how this particular news will affect the price of a particular asset. The trader must constantly follow the news.
Often traders specialize in certain assets in which they are best versed. All this is achieved only with experience and practice. Therefore, only experienced traders are involved in positional trading. Such a trader concludes from 1 transaction per day to 1 transaction per week. Thus, the trader has enough time to analyze the information.
Depending on the duration of the transaction, investment trading is divided into:
- Short-term – from 3 months to 1 year;
- Medium-term – from 6 months to 3 years;
- Long-term – over 3 years.
It is important for the trader to find the most promising assets. To do this, you need to understand the assets themselves, be able to analyze seasonal fluctuations in prices for certain assets, to know the historical statistics of price movements for positions of interest to him.
The trader forms a basket of the most promising assets from his point of view. For him, temporary price fluctuations are not important. For him, the growth of prices in the future is important. Traders do not follow daily fluctuations in prices. They are in a constant search for new assets that are most promising, their detailed study. If the market changes and the asset becomes less profitable, the trader sells it, and buys new positions with the money raised and builds up the number of old assets in his basket.
Classification of types of trading using robots
Depending on whether the trader uses automated systems or not, trading is divided into:
- Manual trading
- Trading using robots.
In turn, trading using robots is divided into:
- Fully automated and
In manual trading, a trader carries out all trading independently without the use of robots and automated systems.
Benefits of manual trading:
A competent trader can adapt to any market condition. A person learns, develops, changes his strategies. In manual trading, the trader is responsible for his actions and manages the funds.
The disadvantages of manual trading:
Span Psychological factors,
A person is subject to emotions. Often people are in stressful situations. Greed, fear of losing profits and other conditions often negatively affect the results of trading.
It is difficult for a trader to track several positions at the same time. The more open positions a trader simultaneously holds, the more often he makes mistakes. It is especially hard for scalpers who open and close 100 positions per day. Constantly, the trader must be in suspense. It is hard psychologically and severely exhausting any trader, regardless of his level of knowledge.
Trading using robots
Trading using robots is divided into:
In automated trading, all the work for the trader is carried out by the robot. He independently opens and closes positions. The participation of the trader is only in setting up the robot, the rest of the work the robot does for the trader.
In semi-automated trading, the robot analyzes the assets, searches for the most suitable points for entering the position and exiting and signals the trader about it. The trader analyzes the data of the robot and, if agreed, opens a position. Same thing with closing positions. If the trader agrees with the robot, then he closes the position manually.
Over time, the market is constantly changing and any, even the most advanced and profitable robot, after some time begins to drain the trader’s money. For a trader, this is a signal that you need to change the settings of a trading robot or buy a new robot.
If a trader uses a semi-automated robot, then he can independently filter out unsuccessful transactions, thereby reducing his risk of losing money. But working with a semi-automated robot requires time from the trader. He must follow the signals of the robot, spend time analyzing them, constantly study the market and monitor its changes.
Recently, the share of automated trading has been increasing. More and more traders are choosing to trust their money to robots. At the same time, many traders use semi-automated robots, when the last word is left to the person, not the robot, and the robot is only an adviser that gives timely signals. And semi-automated robots do not need to be changed and reconfigured as often as automated ones.
Also, do not forget that the market is constantly changing, trading robots are being improved, they require powerful equipment, good servers, and professional setup from the trader. Over time, robots need to be changed or reconfigured. Any, even the most perfect and perfectly tuned robot, after some time begins to drain the trader’s money. You need to reconfigure it or buy a new robot.
Advantages of Trading Robots
- Psychological factors
Robots have no emotions, no fear, greed, fear of losing profits. Human feelings are not peculiar to them, there are no psychological errors.
Robots can simultaneously track dozens and even hundreds of positions and monitor the movement of prices on them. Man cannot do this. A person can easily miss a potentially profitable asset, as he simply will not have time to analyze all the positions, and the robot will not miss and will not miss. He will analyze and highlight all the assets.
Disadvantages of trading robots
A person sets up a trading robot; a robot cannot reconfigure itself. Over time, any market changes and sooner or later the robot begins to drain the trader’s money. This means that you must either reconfigure the robot, or buy a new one.
Semi-automated trading robots are more adaptive, since the last word for a person and a trader can filter out robot errors without losing money. But even with a semi-automated robot, it becomes difficult for a trader to work if the robot begins to constantly make mistakes and the trader needs to sift a lot of signals. The trader receives a lot of extra signals, and this is an additional job.