Online trading is a less complicated digitized service, where traders leverage the online trading platform to sell and purchase products on the internet. It includes trading in stocks, bonds, ETFs, mutual funds, futures & international currencies. The significant advantage of online trading is the speed of execution & settlement of transactions, as the entire procedure is digitized. Trading platforms are a portal that enables traders & investors to place trades & monitor accounts via financial intermediaries like an online broker. These platforms are often provided by brokers either at a discount rate or free in exchange for maintaining a funded account or meeting particular targets. The products that can be purchased with the platform are bonds, stocks, derivatives, commodities, etc., & a good communication network is created between intermediaries & the traders for efficient execution.
The initial public offering is the company’s stock offered to the public for the first time in the form of a share. The firm’s stock rate varies on the firm’s finance & profitability. When an online platform is used, it acts as an online broker, where the websites offer the user with availability & options of the stocks they wish for. If an order is placed by that person, it automatically stores in a database & once the trading payments are confirmed, the user gets his stock in his trading account in the form of money.
Two kinds of trading platforms are – Electronic & Floor trading; Electronic trading leverages IT tech to gather buyers & sellers together in a virtual marketplace. In contrast, Floor trading brings people to an area known as the trading floor for product exchange.
Primary Approach in Analyzing Financial Market
Fundamental & technical analysis are the 2 primary schools of thought directing at analyzing the financial market & making investment decisions. Fundamental analysis considers the financial & economic factors influencing the business, while technical analysis considers the price movement of security & leverages this information to predict future price movements.
- Understand the firm before planning to invest.
- Analyze the firm’s financial statements like profit-loss reports, revenue, expenses, balance sheet, etc.
- An important factor that can drag a firm down is debt. Hence, make sure you check the debt & avoid those having colossal debt.
- Find a firm having top-notch performance & better upcoming projects, future prospects, etc.
- Don’t invest in a firm & forget about it. Review all the aspects from time to time.
- Price discounts are everything; this assumption arises when technical analysts look at price movement while ignoring fundamental factors. They counter this assumption by adding that the market rate reflects everything that could impact the firm. It is believed that the firm’s fundamentals, financial factors & market psychology are all into the stock, eradicating the need to consider these separately.
- Prices follow the given trend: The basic logic behind the technical analysis is to trade with the trend. Once a trend is shown, the future price movement will be in the trend’s direction rather than against it.
- History repeats: The last assumption is trends are repetitive; hence human behavior & history repeats themselves. Market participants tend to offer a compatible reaction to similar market urges over time. Technical analysts make use of chart patterns to analyze market movements & understand trends.
Significant differences between Fundamental and Technical Analysis
- Fundamental analysts begin with the firm’s economic statements. They try to find the firm’s value by reviewing the balance sheet, cash flow & income reports. Whereas technical analysts start their analysis with charts. They believe there is no reason to examine the economic statements as the stock price includes all the needed data. They focus on stock chart analysis to acquire price hints.
- Technical analysis takes a short-term approach in investing as stock charts can be delimited in weeks, days, or even minutes when compared to long-term methods by fundamental analysis, as it often views data over multiple years & has to wait for a long time before the firm’s value reflects on the stock market.
- Fundamental analysts often try to make long-term trades in a stock’s underlying business. In contrast, technical analysts try to make short to medium-term investments where they can flip a stock.
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