Last updated on May 25, 2022
If you are new to trading an you don’t know How to Trade in Financial Markets in Dubai; then your first thought will be Where should I start?. Many new traders may be over whelmed when they open their demo trial account; for the first time and might try to run before they can walk. Understanding the basics of trading is an essential starting point and in this the two part article; we will cover the key characteristics of trading; the various financial instruments we can trade, the concept of going long and going short; and also trading platforms, starting investment and what it takes to succeed.
What is the difference between investing and trading?
Investing and trading are two dissimilar ways that we can profit from the financial markets. Some people new to the world of finance can be confused over what is the difference between the two. Here we will define what we mean for each.
What is investing in Financial Markets in Dubai?
The aim of an investor is to gradually build up their net worth; that is by purchasing and holding a portfolio of stocks; bonds, mutual funds or other investable instruments.
Investments are often held for year or more. Investors take advantage of certain perks such as dividend payments, coupon payments and interest during this period. When the markets fall in value; numerous investors will hold on to their investment in the expectation that the price will rebound. Investors are therefore looking at the long term value of their investment; and are not very concern with the day to day volatility in the market.
Investors take physical ownership of the instruments they have bought. So for example, if an investor purchases shares in a company; they will physically own a portion of that company and will receive a certificate of ownership. A shareholder can carry certain privileges such as voting rights on certain corporate actions; as well as profit from dividend payments on the profits.
How to Trading in Financial Markets in Dubai?
On the other hand if you look for, How to Trade in Financial Markets in Dubai; is the more frequent buying and selling of financial devices with the aim of outperforming buy-and-hold investments. There is no ownership of the underlying asset so traders are only speculating on the price movement.
Traders can therefore get profit from falling markets as well as rising ones. A trader can purchase an asset just like an investor; but traders also have the ability to sell an instrument without owning it. This is recognize as short selling and this is why many people are particularly attract to trading. It is a key concept to understand and is a main reason why traders can outperform buy-and-hold investors.
While investors are often satisfied with annual returns of up to 15% depending on the risk element of the investment; some traders look for making returns that are a multiple of this; as they can benefit from the dips in the market; as well as the increases because of the ability to short sell.
The length of time a trader has a position open for may range from seconds to years. This time frame is completely up to them and relates to their objectives; account size, risk profile and time they can commit to trading. Trading requires a more hands on approach; than investing and regular assessment of market conditions is important when traders have open positions.
What and How to Trade in Financial Markets in Dubai?
A financial tool is a trade able asset of any kind i.e. It is an asset we can purchase or sell at a monetary value on a financial market.
Examples of financial instruments include currency pairs; (i.e. the foreign exchange/FX market), commodities; stock indices and the stock of companies (also recognized as individual equities). As we do not take ownership of these assets; when we are trading we are actually speculating on the price of futures contracts for FX tools; and Contracts for Difference (CFDs) for shares, commodities and stock indices. The value of these contracts is directly related to the price of the underlying instrument. So any movement in price of the physical asset will see a parallel move in the price of the contract.
The reason we trade futures contracts and CFDs; is mostly due to the ease at which they can be traded and their cost-effective nature. For example, if we physically own a share in a company; we may be liable for additional charges such as stamp duty in certain countries. There is not such cost with futures contracts and CFDs. CFDs can be sold short as well. This is something that other types of instruments are forbidden from doing.
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