Trading for beginners: What it is, how it works and how to start

Building personal wealth often takes time, especially when relying on a single source of income. Trading is one way individuals can take part in financial markets, but it is not a guaranteed path to financial security. Like any financial activity, it involves risk, and outcomes depend on factors such as market conditions, knowledge, experience and how risk is managed.

One reason trading appeals to some people is that it can be started with relatively low initial capital and offers flexibility over when and how often trades are placed. However, potential returns vary, and success depends on understanding how trading works and approaching it realistically.

This guide provides an introduction to trading to help you understand the basics before deciding whether it is right for you.

What is trading? Definition, key markets and how traders make profit

Put simply, trading is the buying and selling of financial assets. These financial assets include stocks, bonds, currencies, commodities, futures and options. Each asset comes with its own characteristics, potential for returns and level of risk. As such, traders will have specific strategies and plans that guide what they buy, when they sell and how much they trade. They also use different tools to place their trades.

At its core, each decision is based on expected price movements, usually over short periods of time.

To decide when to enter and exit a trade, traders study price charts closely and use other market analysis tools. They also consider changes in market sentiment linked to these price movements. Other events can also influence trading decisions.

Trading vs investing: the key differences

Trading and investing both involve participating in financial markets, but they differ in time horizon, objectives and typical risk profiles.

Trading generally focuses on short-term price movements, with positions often held for minutes, hours, days or weeks, and aims to profit from shorter-term market fluctuations. This approach usually involves more frequent decision-making and exposure to short-term volatility.

Investing, by contrast, typically involves holding assets for longer periods, often months or years, with the objective of long-term growth or compounding returns. While some investors actively manage their portfolios, “active investing” still differs from short-term trading in its longer time horizon and lower sensitivity to short-term price movements.

Understanding these differences helps beginners decide whether trading or investing is more appropriate based on their financial goals, available time and tolerance for risk.

What can you trade? Popular markets and instruments

Traders can access a range of financial markets, each with different characteristics, including volatility, liquidity, trading hours and typical costs.

Markets with clearer trading hours and steadier liquidity may be simpler to observe, while more volatile or leveraged instruments carry higher risk and require more experience.

• Forex (foreign exchange) is a market where currencies are traded and is open 24 hours a day during the business week. While liquidity can support trade execution, price movements and the use of leverage can increase risk.
• Indices reflect the performance of groups of stocks and are influenced by broader economic and market factors. Volatility can vary depending on market conditions.
• Stocks represent individual companies and trade during specific exchange hours. Prices may be affected by company-specific events, earnings reports and wider market developments.
• Commodities, such as gold or oil, are influenced by supply and demand, geopolitical developments and economic conditions. Risk conditions differ across commodities and over time, and some commodities are seen as safe-haven assets during volatility.
• Cryptocurrencies trade almost around the clock and often experience significant price fluctuations, which can increase both risk and uncertainty for beginners.

Many of these markets can be accessed through CFDs (contracts for difference), which allow traders to speculate on price movements without owning the underlying asset but typically involve leverage and additional risk.

How trading works: supply, demand and trade execution

All trading is based on supply and demand. Prices tend to rise when there are more buyers than sellers, and fall when there are more sellers than buyers.

Market prices are usually shown as a bid price, which is what buyers are willing to pay, and an ask price, which is what sellers are willing to accept. The difference between the two is called the bid–ask spread and is a common trading cost.

To trade, a trader places an order to buy or sell an asset. Once the order is accepted and filled, a position is opened. As prices move, the position results in a profit or loss based on the difference between the opening and closing prices, after trading costs. A trade ends when the position is closed, either to take profit or limit loss.

Trades can take place either over the counter (OTC), where transactions occur directly between parties, or through an exchange, which brings buyers and sellers together in a central marketplace. Major exchanges include the New York Stock Exchange, NASDAQ and the London Stock Exchange.

To decide when to enter and exit trades, traders often study price charts, follow economic events, and consider overall market sentiment.

Trading costs and fees you should understand before placing a trade

Trading involves costs that can affect results and vary by market, instrument, and how long a position is held. Common costs include the spread, which is the difference between the buying and selling price, and commissions, which may be charged on some instruments or account types.

Traders may also experience slippage, where an order is filled at a different price than expected, usually during fast-moving or low-liquidity market conditions.

If a position is held overnight, financing or swap charges may apply, especially when using leverage. Some platforms may also charge platform or market data fees, depending on the services and markets used.

These costs affect both strategy choice and break-even levels. For example, in short-term trading, wider spreads mean prices must move further before a trade becomes profitable. Understanding how costs vary across different markets and increase with leverage or longer holding periods helps traders assess potential outcomes more realistically.

Risk management basics for beginners

Risk management is a core part of trading and it focuses on controlling potential losses, particularly in uncertain market conditions where traders may need to adjust their strategies for volatile conditions. A common starting point for beginners is to decide how much they are willing to risk on a single trade, often a small percentage such as 0.5% to 2% of capital per trade, to help limit the impact of losing trades.

This links directly to position sizing, where the size of a trade is set using predefined exit points rather than the profit a trader hopes to make. Clear exit levels help manage risk consistently and make the risk–reward ratio clearer before entering a trade.

Risk management includes understanding maximum drawdown, or the largest drop in account value over time, and being prepared for losing periods. While diversification across markets can help reduce exposure to one asset, taking too many trades at once can increase overall risk.

Using leverage and margin responsibly

In many markets, leverage allows traders to control larger positions with a relatively small amount of capital, known as margin. The margin requirement is the amount needed to open a trade, while margin level is typically expressed as a percentage of equity relative to used margin and indicates how close the account is to a margin call or automatic position closures (stop-out).

If losses reduce margin too far, a margin call or stop-out may occur, causing positions to be closed automatically. Because leverage magnifies both gains and losses, controlling position size and setting clear exit levels is especially important for beginners. Stop-loss orders are commonly used to limit losses before margin levels are reached, helping reduce the risk of forced closures.

How to analyse markets: technical vs fundamental analysis

Market analysis helps traders decide when to enter or exit trades and which markets to focus on. Beginners often use a combination of technical and fundamental analysis, depending on their trading style and timeframe.

Technical analysis focuses on price behaviour. Traders study charts to identify trends, support and resistance levels and basic indicators to help time entries and exits. For beginners, keeping technical analysis simple, such as focusing on overall trend direction and key price levels, can be more effective than using multiple indicators at once.

Fundamental analysis looks at economic and market drivers such as interest rates, inflation data, employment figures and major news events. This type of analysis is often used to understand why markets move and to assess broader market direction.

To stay consistent, beginners should avoid indicator overload and stick to a small set of tools they understand well. Using the same analysis process for each trade can help reduce emotional decision-making and improve clarity over time.

Choosing a broker and trading platform: a beginner checklist

Before placing live trades, beginners need to choose a broker, and trading platforms, that suit their needs and risk tolerance. Several practical factors are worth considering.

Regulation is an important starting point. Trading with a regulated broker helps ensure certain standards around client funds, transparency and operational conduct.

Fees and costs vary between brokers and can include spreads, commissions and overnight financing. Understanding how these costs apply across instruments and account types helps traders assess the overall cost more realistically.

Market access and product range determine which assets are available to trade. Some brokers focus on specific markets, such as forex, indices, commodities or equities, so it is important to choose one that supports the markets you want to focus on.

Account types differ between brokers and may be designed for different experience levels or trading styles. Selecting an account that matches your approach can help manage costs and expectations.

Platform features, support and education are also important, especially for beginners. Access to customer support, learning resources and a demo account allows new traders to practise and become familiar with trading tools before using real money.

How to start trading: learn the basics and build a plan

As a beginner, it’s important to learn the basics before placing your first trade. This includes understanding how markets work, the different types of assets available, and common trading strategies. Being able to analyse market conditions, follow financial news, and understand what drives price movements can help you make more informed decisions. Economic data and global events can also influence markets, so staying informed is important.

Once you feel confident in your knowledge, create a trading plan. This should outline the type of trading you are comfortable with, the strategies you will use and how you plan to manage risk. You can then choose a broker, open an account and decide which markets or assets to focus on.

Next steps involve practising, refining your approach and continuing to learn. As experience develops, traders often explore different strategies and trading styles, which vary by timeframe and how long positions are held. Choosing an approach usually depends on factors such as available time, trading costs, and tolerance for market volatility. Testing strategies, often on a demo account, can help improve consistency before applying them in live markets.

Alongside strategy, staying informed about economic events can support decision-making, as data such as interest rates, inflation, and employment figures can affect markets. Over time, trading also requires discipline, patience and emotional control, especially during periods of market stress. Developing these skills gradually is an important part of becoming a more consistent trader.

Learn more about trading today.

FAQs

How should a beginner start trading?

A beginner should start by learning how financial markets work, understanding different asset types and staying informed about market conditions and global events. Creating a trading plan and practising with a demo account before trading live can help build confidence and discipline.

How to start trading online?

To start trading online, beginners typically choose a trading platform, open an account and learn how to access markets. Before trading with real funds, it’s important to understand how the platform works and practise trading in a risk-free environment.

How do you decide when to buy or sell in trading?

Beginners decide when to buy or sell based on their analysis of price movements, market sentiment and relevant news or economic data. Having a trading plan helps guide these decisions and reduces emotional reactions during fast-moving markets.

Which platform is best for trading for beginners?

The best trading platform for beginners is one that is easy to use, supports the markets they want to trade and allows them to practise and learn. Understanding how a platform operates and gaining experience before trading live is more important than choosing a specific platform.