Beginners guide to trading in global markets

By Kyle Hibbard

Prior to placing capital at risk in markets there is a set of criteria one must take into account and pursue.

One of the first decisions to be made is what type of financial instrument one desires to trade.

The primary asset classes worth consideration for the individual are Equities (stocks), Options, Futures (the primary method of trading commodities), and Currencies (Forex).

There are different advantages and risk considerations for each of these markets, and they must be evaluated when selecting a market to trade. There are also different initial account equity requirements for each asset class and different amounts of leverage for each instrument.

Asset class and market selection

While there is much overlap, there are also different styles and skills of trading that are unique for each specific market.

Another decision to be made is that of 'where' to trade. Ultimately the choice comes down to domestic markets or international markets. The growth of e-trading over the past 15 years offers unparalleled access to international markets across the globe and represents tremendous opportunity for anyone currently deciding to get involved in trading.

Considerations for market location should include liquidity, transparency, and regulatory oversight. In general, the best place for trading occurs where markets have high volume of activity, a large number of participants, efficient systems, and where markets operate freely within a strict regulatory framework. This all helps to ensure the best possible order handling at the lowest cost for the participant and the safety of capital deployed in the marketplace.

Brokerage account and market access

In order to pursue trading, a brokerage account must first be opened.

There are more choices than ever with regards to brokerages. This is of great benefit to those currently entering markets because industry competition has resulted in commissions (the fee charged for order execution) being lower than ever before and continual improvement to services and functionality.

The best choice for an active trader is a 'Direct Access' brokerage. Direct access essentially means that the brokerage is acting merely as a pass-through entity, charging a small fee for allowing customer orders to pass directly in to the market and receive the most instantaneous execution possible.

Real-time price quotes and data feeds are generally associated with direct access brokerages as well. It is imperative for a trader to have real-time quotes and feeds in order to make timely trading decisions and be able to respond quickly to movements in price.

Education, training and mentoring

No matter what one endeavors to pursue, education is always of paramount importance. There is a tremendous amount of market related education currently available through books, websites and seminars.

The more well rounded one's market knowledge, the higher the probability for success in market interaction. In general though, it would be best to try to focus on receiving more qualitative education as opposed to sheer quantity.

It is of significant advantage to new market participants if they can acquire training or mentoring from someone who has significant trading experience. Experience is unquestionably the best teacher, and having someone who can share the benefits of their market experiences and acumen can save a new market participant immense amounts of time and account equity.

A commitment to ongoing education is a natural part of the process when one is engaged in the business of market participation. Markets are dynamic and constantly changing, in terms of trends as well as regulations, asset offerings, and technology.

Successful market interaction necessitates that one be a student of markets and continually upgrade your base of knowledge. This is extremely true in the case of markets and trading. Some things well worth consideration are:
Risk Management
Order Execution
Platform or Software
Fundamental Analysis
Technical Analysis
Market Mechanics
Overall Market Knowledge Psychology
Discipline
Strategies Shorting
Trading Plan

Practice and experience

Once a brokerage and trading software has been selected, it is advisable for a beginner to spend some time practicing the skills of trading in a training account.

This means simulated order execution with no equity at risk. Doing this allows the beginner to develop their trading style and learn from unprofitable trades without depleting their capital reserves.

Simulated trading also allows the beginner to endure the most difficult part of their learning curve while gaining experience in markets and refining their trading system. During this period of simulated trading, one should strive to achieve consistency and quantitative performance enhancement.

Business plan

Endeavoring to become a trader encompasses the best facets of modern society in their purest form - entrepreneurship and capitalism.

Being a trader means being an independent business owner. As in any business, the creation of a plan is one of the most important components to success, but unfortunately, it is also one of the most often overlooked or forgotten. The plan governs the business operations, defines risk management principles that have to be adhered to, and creates the structure under which successful market participation can occur. Creating a plan allows one to also have a system by which to evaluate performance and monitor results.

Additionally, it is helpful in the minimization of emotional decision making and helps establish the parameters for optimal performance in market interactions.

Essential discipline

The business of successful trading is not about having some 'secret formula' or algorithm. The formula is simple, and is the same as in any other business: Hard work and discipline.

The premier discipline required for efficacy in market interaction is, first, foremost, and forever, the ongoing mitigation and effective management of risk. The current global state of affairs with regards to financial institutions is the direct result of failure on their part to do exactly this - manage risk.

It is an important lesson for us all and a reminder that even the seemingly mightiest and most stable entities can be brought down if they forget the first rule of capital. It is not the generation of performance, but that of capital preservation through a strict focus on risk management.