Learning to Grow Your Money by Trading and Investing

Growing money through markets is less about finding a secret and more about following certain guidelines and build a repeatable process. You decide what you’re aiming for, match that to a method, control costs and taxes, and keep risk at a level that lets you stay in the game. For basic trading and investing, the tools and know-how are widely available. The hard part is setting rules you will actually follow when prices move fast or headlines shout. A good plan starts small, gets tested with real numbers, and scales only when the basics are routine.

Before you even consider active trading, it is advisable to establish both an emergency account and an investment account, and also make sure you have proper insurance cover.

The emergency account is your first priority, as it will help you when life throws you a curve ball. Without an investment account, any small shake in life can force you to sell off investments at an inopportune moment, e.g. when the market has taken a dip or when realizing gains is a bad idea from a tax point of view, simply to cover unforeseen expenses. Not having an emergency account can also force you into high-cost debts, or spur you into more risky trading, as you desperately hope for that big payday that would save you. Exactly how big your emergency account need to be varies depending on your life situation, and on how much of your monthly expenses that are fixed vs. flexible. A good rule of thumb is three to six months of necessary expenses. This money needs to be in a very safe and very liquid account or accounts. Do not take risks with this money. This money is there to reduce the amount of risk in your life, not add to it.

Proper insurance coverage help reduce the risk of you having to cover every emergency and adverse life event completely out-of-pocket. Without adequate insurance, both your emergency account and your investment accounts can be depleted very quickly, eroding years of careful saving and investing.

Advice for Trading and Investing

Start with purpose, not products

It is easy to get mesmerized by some particular financial product or method when shiny adds and paid-for influencers are promising great returns, but a much better approach is to start with yourself, put a strategy together, and then go looking for a suitable way to execute your plan. Write down why you want returns (goal or goals) and when you need the cash (time horizon). Saving for a house deposit in two years is not the same as building a retirement fund you won’t touch for decades. Short timelines demand stability and liquidity, while longer timelines can accept swings and lock-ins for a higher expected return. When the goal and horizon are clear, it will be easier for your to map out the rest.

Investing.co.uk is a good resource if you want to learn more about how to choose a product that suit your purpose of investing.

Risk and returns

Every strategy trades comfort for potential growth. Volatility is not failure, it’s the toll you pay to access higher returns. What you control is the size of each bet, the mix of assets, and the rules that tells you how to act. If a drawdown of twenty percent would make you quit, you need a calmer mix or smaller positions. If you can tolerate bigger swings without changing the plan, you can own more growth assets.

Different investment accounts can have different goals and time horizons, and therefore also different rules when it comes to how things such as asset selection and overall risk level. The same is true for trading; a position trading account will not use the same template as an intraday trading account, and so on.

Costs and taxes

Before picking a fund or placing a trade, choose the right broker and account type. Tax-advantaged wrappers, employer retirement plans, and similar can change net results a lot, especially over time, and the decisions your make regarding this can be far more important than any single stock pick.

It is also important to remember that every portfolio change can come with a price, and you need to stay on top of these costs. Spreads, commissions, financing on margin, and tax on realized gains or distributions all reduce compounding. Make sure you take full advantage of the best routes available to you, e.g. by accumulating share classes or sing up for dividend reinvestment plans where they make sense. Hold periods that convert short-term taxes into long-term rates can make a large difference. Put the most tax-inefficient assets inside tax-advantaged accounts when possible and keep tidy records so you do not donate extra through sloppy filings.

Using core building blocks to create a simple investment portfolio that works

As mentioned above, it is a good idea to have your safe and liquid emergency account in place before you take this step, and also ensure you have proper insurance coverage for your particular situation, e.g. home insurance, health insurance, life insurance, vehicle insurance, and so on, as applicable. Once the emergency account and the insurance policies are in place, you should consider regular contributions to one or more investment accounts, e.g. one retirement account/health account and another one for goals that are a few years into the future.

When you are ready, decide which type of investment account you want to begin with and then explore the various options open to you in your particular situation and jurisdiction.

When it comes to portfolio allocations, most starter-portfolios for individual investors combine a few simple pieces. Broad equity funds own slices of many companies and drive long-term growth, and they are available at different risk levels. Investment-grade bonds damp volatility and pay interest. You can add some diversification at the edges through commodity funds, forex funds, and REITs.

For a beginner, low-cost equity index funds are a good start. Both low-cost index mutual funds and low-cost index exchange-traded funds (ETFs) can be good choices, and you can combine both in the same investment portfolio. Returns stacking on returns turn pretty ordinary contributions into real money over time. Two levers matter most. Time in the market, which you control by starting early and staying invested, and cost drag, which you control by picking low-fee vehicles and avoiding needless turnover. A fund costing 2 percent a year might sound small until you multiply it across decades, and realize that every $1 you pay in fees is $1 you can not invest and that will not yield any returns for you.

You you continue, define your target mix and do not change your mind willy-nilly when emotions run high. Choose vehicles that express your long-term strategy. You can for instance start with one global equity fund, one national equity fund, and one bond fund. Set contribution dates. Decide a rebalance rule, either quarterly or when a holding drifts beyond a band you set in advance. Record everything in a simple sheet. date, action, reason, cost. The sheet keeps you honest when memory gets creative after big moves.

When it comes to equity vs. bonds, it is advisable to pick a sensible split between equities and high-quality bonds that matches your tolerance for swings. Someone with a long horizon might hold seventy to ninety percent in equities and only a small percentage in bonds. When time horizons are shorter, more bonds are included to reduce risk. Re-balance on a schedule or when weights drift. That alone, done for years, beats most complicated approaches because costs stay low and behavior stays steady.

Aim to set up a system that will continue to work even when you do not have the time and energy to micro-manage it. Automate contributions from the account where you salary lands. Sign-up for dividend reinvestment programs where they make sense. Keep admin simple so most of your energy goes to asset mix and execution, not paperwork.

Are you considering active trading?

Active trading, such a day trading, swing trading and position trading, can add return, and can also make the journey more interesting if you enjoy research and execution. But it will also add both risks and costs, and should only be a well fenced-in part of your total strategy.

Treat it like a lab where you test hypotheses with money you can afford to learn with, and employ a risk-management routine that will keep your account alive even through stormy patches. Cap risk per trade as a percentage of equity, then size positions from the stop distance, not from how confident you feel. A good rule of thumb is to never risk more than one percent of your trading account balance on a single trade. That turns a hot streak into progress without turning a cold streak into a crisis. Place exits (stop-loss order and take-profit order) when you enter. You can use trailing stop-loss and take-profits if you know how they work.

You do not need expensive or exotic software. A broker with reliable execution, a stable trading platform, a charting tool you understand, a news feed that filters rather than shouts, and a spreadsheet/journal is a good start.

Keeping a trading journal is vital, but many beginner skip this step. A journal will keep you honest over time. It will track your progress versus your chosen benchmark and tell you if the plan works. It is also important for you to keep fresh how painful the worst periods feel, and whether your active sleeve adds value or just adds noise. Most fixes are about being more picky, cutting costs, sticking to the risk management routines even better, and getting rid of strategies that no longer fit, not chasing a new idea every week. Markets test patience more than intelligence. You will feel fear at lows and greed at highs like everyone else. Pre-commitment helps. Automate entries and exits, and make decisions at calm times rather than inside spikes. If you need excitement, find it outside your trading account. The money is for goals, not for thrills.

Examples of common trader mistakes.

Starting with hot tips or a “gut feeling” instead of a plan.
Not having a detailed risk-management plan with actionable routines that you can stick to even when emotions run high.
Using leverage before you can define worst-case loss in currency terms.
Paying high broker fees (commissions, spreads, etc) that will erase your edge.
Trading too many names with no sizing discipline.
Ignoring taxes until filing day.
Moving the goalposts after losses or wins.
Not keeping a trading journal.
Thinking that overtrading is the same as working hard.
Expecting trading to be super-fun and exciting all the time. This mindset causes traders to refuse to do the dull work that is inherent to long-term successful trading, and also increases the risk of them taking on too much risk to keep it exciting at all times.

When to Trade and When to Invest

Financial trading and investing both aim to grow capital, but they work on different clocks, exploit different edges, and succeed under different personal constraints. Trading tries to harvest shorter price moves with position management and frequent decisions. Investing lets compounding do the heavy lifting over longer horizons with fewer decisions. The right choice on any given pound or dollar depends on a wide range of factors, including horizon, liquidity needs, tax rules, costs, capacity to monitor risk, and whether you actually have an edge at the timeframe you’re targeting.

It is always important to take your own situation into account. A professional with a stable salary and a twenty-year horizon can invest the bulk via automated monthly contributions into broad funds, add a modest single-name sleeve for trading ideas backed by fundamental work, and also reserve a very small capital slice for two to four trades per month around earnings or macro prints. A freelancer with variable income and irregular cash needs should keep a larger cash buffer, invest through flexible wrappers that allow withdrawals, and either refrain from trading or only devote a minimal amount of the total budget to it. A retiree drawing income can preferably focus on investing with sequence-of-return protection, using assets such as investment-grade bonds and dividend paying blue-chip stocks. Defensive trading can be a smart move, e.g. employing temporary hedges during known events, but trading should not be treated a source of required cash flow.

Investing comes with a longer time horizon than trading, even though the line between position traders and short-term investors can be blurry at times. Investing is not faced paced, which means you can keep trading costs much lower than for trading. Commissions, spreads, etcetera can build up quickly for a trader and erode profits. In many jurisdictions, investors are also treated more favorably from a tax perspective. Many law makers wish to encourage investing and you might for instance have access to tax-advantaged retirement accounts, health accounts, or flexible life accounts. Investing will also allow you to let compound growth (and dividends and interests, when applicable) do a lot of the heavy lifting. The power of compounding returns build on themselves over time. Still, investing is not without risks, not even if you stick to blue-chip equity funds and investment-grade governmental bonds. You still need to consider market cycles, and large drawdowns possible during crashes. Patience is a virtue, but even with a lot of patience, profits are never guaranteed. There is also the risk of playing it too safe. If you invest heavily in low-yielding, low-risk assets, inflation might outpace growth, eroding your purchase power over time.

Time horizon and cash needs decide the default

Most capital most of the time belongs in investments that compound quietly under sane risk. Trading is a specialist tool for defined windows and defined edges. Decide based on horizon, edge, frictions, and temperament, separate the buckets, write the rules, and let each method do the job it is actually good at. When you are unsure, lean toward investing. Only trade when you are more certain and prepared, and even then, keep trades small and precise. Over years, those two sentences prevent more errors than any indicator ever will.

Money you might need within the next one to three years rarely belongs in trades that can gap against you overnight (and should also be kept out of assets that can draw down for months). Near-term obligations like a house deposit, tuition, or living costs should sit in cash, short bills, or very short-duration bond funds. This money needs stability rather than return-chasing.
Goals five years and beyond can handle more risk and the compounding that comes with it, which points to investing in broad funds or high-quality businesses and leaving them alone through routine volatility.
Trading suits the slice of capital that has no defined near-date use and where you can tolerate both variance and attention costs. It is never the pool you rely on for rent or an emergency.

Signal decay and research depth separate methods

To put it simple. The shorter your stated edge, the more it favors trading, with tighter controls and lower per-trade risk. The longer your edge, the more it favors investing, where you ride out the swings over time and don´t tinker much in between.

If your idea rests on multi-year drivers, such as market share gains, demographics, cost curves, or balance sheet repair, the thesis compounds slowly and fits investing. The tools are patience, reinvestment of cash flows, and periodic review rather than constant tinkering. Investing is a great choice when the thesis is one that survives noise, benefits from time, and relies on compounding cash flows rather than short-term tape. Examples include owning a low-cost global equity fund inside a tax wrapper for retirement, building a position in a company whose economics you can model and whose moat you can explain, or allocating to factor funds with decades of evidence and accepting their occasional underperformance. Here the decision weight is front-loaded into selection and sizing, and the ongoing work is periodic review, not constant reaction.

If your idea instead rests on a catalyst with a clear window (earnings next week, a rate decision tomorrow, a seasonal flow this month) the thesis decays quickly and fits trading. Position sizing, defined exits, and pre-committed risk are the tools.

Use short-term trading (e.g intraday or swing) when the thesis is time-boxed, the catalyst window is clear, the setup has defined entry and exit levels on the chart, and the risk can be capped to a small fixed percent of equity. Examples include fading an exhaustion move back to VWAP, buying a confirmed breakout with a tight stop below structure, playing a volatility crush after earnings with defined-risk options, or hedging book beta into a central bank decision using index futures for forty-eight hours. In each case the thesis either plays out quickly or it doesn’t, and your plan defines both outcomes in advance.

Costs, taxes, and frictions push you toward patience unless you can beat them

Trading typically involves erosion from things such as slippage, spreads, commissions, data feed costs, and financing on margin. Tax codes often punish short holding periods and reward long ones through lower rates or wrappers that shield gains. If your gross trading edge before costs is thin, those frictions erase it quietly. Investing lowers turnover, lowers observable costs, and often benefits from tax allowances, dividend reinvestment, and fewer mistakes made under pressure. The only good reason to accept trading frictions is if your tested process still produces a healthy net expectancy after them. Do not get into trading because activity feels productive or you need some excitement in your life.

Volatility tolerance and attention are real constraints

Trading demands presence. You must watch tape, respect stops, and accept that some days generate multiple small losses before a winner. If that pattern makes you tense or distracts you from work, the bleed in focus will show up in decisions and returns. Investing demands patience and emotional distance. You must sit through drawdowns without turning long-term positions into short-term reactions. If a twenty percent mark-to-market drop would force you to liquidate at precisely the wrong time, your allocation is too aggressive. Fit the method to your temperament or the market will fit losses to your impatience.

Different strategies for different market regimes

What the market your are interested in looks like will also impact if trading is a good idea, especially considering your own preferences when it comes to trading style, risk, and time allocation. In general, choppy, range-bound conditions with mean reversion often reward short-duration trading and punish buy-and-hold entries made at random points. Strong, persistent trends with clear macro tails winds are instead more likely to reward investing and punish overactive trading that cuts winners too early. Liquidity and dispersion matter too. when a few mega names drive the index, trend investors with concentration rules may outperform, but when dispersion is high and leadership rotates, selective trading is more likely to shine. You do not need to guess regimes perfectly, only recognize when your usual method has stopped paying and shrink size or step away until conditions fit again.

A simple decision framework you can reuse

Start with horizon and cash needs. if the money has a date, invest conservatively or hold cash, depending on the horizon. If not, and it is money you can readily afford to lose, test whether you possess a repeatable short-term edge net of costs. If the answer is no, default to investing. If yes, cap the trading sleeve and define max daily and weekly loss to avoid account-level damage. Map the current regime. if trend and breadth are strong, let the investing core do most of the work and keep trading selective. If ranges dominate and catalysts are frequent, let the sleeve work and keep the core steady. Review monthly with plain metrics and adjust only when the data, not mood, demands it.

Sizing and structure make it possible to do both trading and investing

It is possible to be a successful trader and investor simultaneously, but you need to keep these two aspects of your financial life separated. A good set up is a core investing allocation that you almost never touch, and a small, quarantined sleeve for trading. The core holds assets such as global equity and bond funds, or a diversified list of durable businesses you understand, and you rebalance on a calendar or drift rule. The trading sleeve is where you run event plays, momentum swings, mean-reversion ideas, or hedges around data prints. Keep records and metrics separate, so a cold trading month does not tempt you to raid the core, and a hot streak does not convince you to abandon the discipline that actually compounds wealth.

How to handle the intersection

There are situations where trading might make you spot a potential investment opportunity and vice versa, and you should have a plan for how to deal with these situations in a responsible way. Otherwise, you might jump on setups that actually would not hold up well to deeper scrutiny. Write rules for both scenarios. If a quick trade runs and then reveals a stronger secular trend, you can scale a residual core and widen the stop to a weekly structure, converting process rather than drifting. If an investment thesis breaks (management credibility shot, structural moat eroded, capital allocation turns reckless, etc) treat the exit like a trade, take it without waiting for “back to even,” and redeploy to ideas that still meet your criteria. Clarity here prevents the classic trap of letting losers extend and cutting winners short.

Opportunity cost and the calendar

Every decision consumes energy and calendar space, and if you open a position, it also binds capital. Trading that keeps you glued to screens can crowd out higher-value research that would improve investing decisions. Investing that ignores the tape entirely can miss obvious risk events where a cheap hedge would have protected months of compounding. If you decide to dob both, schedule blocks for each mode. Batch research and portfolio reviews on quiet days. Batch trade preparation the night before. Your calendar is a risk tool, use it deliberately.

Examples of Common Instruments for Retail Investment Accounts

Equities

Equities are shares in a stock company. In everyday language, the terms equities, company shares, and stocks are often used interchangeably.

For a new retail investment account, publicly traded shares are recommended over private equity, since public shares are traded at an exchange. When a share is exchange-traded, it typically means higher transparency, better liquidity, better accessibility, and lower transaction costs compared to private equity.

Shares can yield a profit through both growth (increased share price) and dividend payments. A share company can decide to pay out some of its profits to its owners (the shareholders) in the form of dividends, and some companies have a long and well-established history of paying dividends every year. A popular strategy for investment accounts is to invest in dividend-paying companies and use each dividend to automatically purchase more shares in the same company. This way, the dividends will help your account grow.

Investing in a company always carry risk. Equities generally offer higher potential returns than investment-grade bonds, but also higher risk. The share price can drop, and in a worst case scenario, the company can fail, rendering the shares worthless. As a co-owner in the company, you will not have priority when it comes to paying out any remaining company assets after a bankruptcy.

Several different share types exists and they can play different roles in an investment portfolio. The dominating type is the common share, which will typically come with a right to attend the annual shareholder meetings and vote on major company decisions.

Bonds and similar debt-instruments

Bonds are issued by governments, municipalities, and corporations as way to borrow money. Instead of going to bank and apply for a loan, they can elect to issue bonds, and investors who are interested in lending out money can buy these bonds.

On a classic bond, you will be paid periodic interest payments, and when the lifespan of the bond is over, you will get your principal (the lent amount) back.

Bonds are debt-instruments, and they belong to the category fixed-income securities. The risk of a bond is tied to the economy of the issuer, and there are several credit rating institutes that will asses and publish information about the creditworthiness of bond issuers. An issuer with a low creditworthiness will need to pay a higher interest to attract bond buyers (“lenders”), while an issuer with a very high credit rating can offer a fairly low interest rate and still attract buyers, as investors use these high-rated bonds as safe havens and to balance out other risks in their investment portfolio.

Examples of well-known governmental bonds:

U.S. Treasuries. Issued by the U.S. Department of the Treasury and backed by the U.S. government. Examples include the 2-10 year T-Notes, the 20-30 year T-Bonds, and the 5-30 year Treasury Inflation-Protected Securities (TIPS).
UK Gilts. Issued by HM Treasury and back by the British government.
The German Federal Government issues long-term (10+ years) Bunds, medium-term Bobls, and short-term Schätze. Due to Germany´s high credit rating, these debt-instruments have become a benchmark for Eurozone government debt.

Example of a major corporate bond issue:

In February 2021, Apple Inc. did a $14 billion corporate debt issue. The purpose was to borrow money that would be used to fund stock buybacks, dividend payments, and general corporate purposes. Even though Apple had over $190 billion in cash reserves at the time, much of it was held overseas. By issuing bonds at historically low interest rates, Apple could finance shareholder returns without repatriating foreign cash and incurring taxes. Apple issued bonds across six tranches with maturities ranging from 3 years to 40 years. The interest rates (coupon rates) varied depending on the maturity, e.g. 0.70% for 3-year notes and 2.55% for 40-year bonds.

Money Market Instruments

Money market instruments are short-term, low-risk debt securities. They are characterized by high liquidity and low returns. Rather than being long-term investments, they are commonly used for cash management in an investment portfolio. Two common examples are Certificates of Deposit (CDs) and Commercial Paper (CP).

Mutual Funds

Mutual funds pool money from many investors and use them to create a diversified investment portfolio. When you purchase shares in a fund, you do not become owner to the assets held by the fund.

Mutual funds can invest in a wide range of underlying assets, depending on their type and investment objective. You can for instance use mutual funds to gain exposure to stocks, commodity prices, bonds, forex, or real-estate.

An advantage with funds is that you can get a high degree of diversification from day one, even if you only have a small amount of money to invest. If you were to build your own investment portfolio by purchasing individual securities, this would be much more difficult.

Example: The Fidelity ZERO Total Market Index Fund (FZROX) has no threshold for minimum investment, so even if you only have a small amount of invest, you can get started right away, and get diversified exposure to the U.S. stock market. FZROX tracks the total U.S. stock market and does not charge any management fees.

If you are looking for low or zero fund management fees, there are many passively managed index funds to chose from. They do not need to charge high fund management fees, since they are designed to track a specific index. Actively management funds are instead aiming to beat the market, which requires active management, and they tend to come with higher management fees.

Exchange-Traded Funds (ETFs)

Exchange-traded funds (ETFs) are similar to mutual funds, but the fund shares are listed on an exchange and traded in a way similar to stocks. Mutual fund shares are bought and sold only once per trading day, after the market closes. With ETFs, shares are instead traded throughout the entire trading day. ETFs are generally more tax-efficient than mutual funds because of the way they’re structured. When investors buy or sell ETF shares, transactions happen between investors on the exchange, not within the fund itself, meaning fewer taxable capital gains distributions.

Examples of ETFs for different types of exposure:

Equity exposure

Example: SPDR S&P 500 ETF (SPY)
Underlying: 500 large-cap U.S. stocks. It tracks the S&P 500 index.
Purpose: Broad exposure to the U.S. stock market

Bond exposure

Example: iShares Core U.S. Aggregate Bond ETF (AGG)
Underlying: U.S. investment-grade bonds, including Treasuries, corporate bonds, and mortgage-backed securities
Purpose: Diversified fixed-income exposure

Commodity exposure

Example: SPDR Gold Shares (GLD)
Underlying: Physical gold
Purpose: Gain exposure to gold prices

Forex / Currency exposure

Example: Invesco CurrencyShares Euro Trust (FXE)
Underlying: Euro vs. U.S. dollar
Purpose: Track the performance of the EUR relative to USD

Real Estate exposure

Example: Vanguard Real Estate ETF (VNQ)
Underlying: U.S. Real Estate Investment Trusts (REITs)
Purpose: Gain exposure to U.S. real estate market

Interest Rate exposure

Example: iShares U.S. Treasury Bond 20+ Year ETF (TLT)
Underlying: Long-term U.S. Treasury bonds (sensitive to interest rate changes)
Purpose: Speculate on or hedge against changes in long-term interest rates

Hybrid exposure

Example: iShares Morningstar Multi-Asset Income ETF (IYLD)

Underlyings: Dividend-paying U.S. and international stocks, corporate and government bonds, real estate investment trusts for income, and sometimes also preferred stocks and commodities-linked instruments.
Purpose: Provide income through a diversified mix of asset classes. Reduce volatility by spreading investments across multiple asset types.

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a company that owns, operates, and/or finances income-producing real estate. It allows individual investors to invest in real estate without buying and managing physical property themselves. Think of it as a mutual fund for real estate: you invest in the REIT, and the REIT invests in properties.

You can use one ore more REITs to achieve a much higher degree of diversification than what would be possible if you were to actually purchase each property in your own name and manage it yourself. REITs are also a way to avoid the direct legal responsibilities and liabilities that comes with real estate ownership in your own name. The REIT assumes these responsibilities and liabilities, and you can not lose more money than you invested.

Equity REITs own and operate income-producing properties, e.g. shopping malls, apartment buildings, and office buildings. They mainly earn money from rents, leases, and from selling properties with a profit.
Mortgage REITs (mREITs) lend money to property owners or buy mortgages. They generate income from interest on loans.
Hybrid REITs combine real-estate ownership and mortgage lending. They earn money both ways.

In most jurisdictions where REITs exist, they are required to distribute a very high degree of their taxable income as dividends to their shareholders to be legally classified as REITs. In the United States, they are required by law to distribute at least 90% of the taxable income as dividends.

Examples of why investors like REITs:

Steady income through dividends
Potential for capital appreciation if property values rise
Diversification into real estate without buying and managing property yourself
High liquidity compared to owning physical real estate. You can sell a fraction of your total ownership in a REIT if you want to. Many REITs are listed on stock exchanges, making divesting a quick and easy process.

Examples of well-known equity REITs are Simon Property Group (SPG) which focuses on retail malls and shopping centers, AvalonBay Communities (AVB) which invests in residential apartments and communities, Prologis (PLD) which specializes in industrial properties and logistics warehouses, Public Storage (PSA) which focuses on self-storage facilities, and Equinix (EQIX) which invests in data centers and technology infrastructure real estate.

If you are interested in mREITs, you can for instance take a look at Annaly Capital Management (NLY) which invests primarily in agency mortgage-backed securities and other residential mortgages, AGNC Investment Corp (AGNC) which focuses on U.S. government-backed mortgage securities, Starwood Property Trust (STWD) which invests in commercial mortgage loans and real estate debt, and the New Residential Investment Corp (NRZ) which focuses on residential mortgage servicing rights and mortgage-backed securities.

Types of Trading — Risks and Benefits of Each

Trading isn’t a single activity. It’s a collection of methods that differ based on factors such as time horizon, speed, and mindset. Each type comes with its own rhythm, costs, and stress points. The best choice depends on things such as how much time you can give to the market, how you handle risk, which type of stress you prefer, and how long you can sit through uncertainty. Below, we will take a look at several different trading strategies and look at their pros and cons. And remember, something that is a con for one trader might be a pro for someone else, so it is not possible to crown any particular strategy as superior to the rest for all possible traders. That is why they have all survived and remains popular today.

Day Trading (Intraday Trading)

Day traders open and close all positions within the same trading day. They profit from intraday volatility, e.g. movements caused by news, data releases, or momentum shifts.Day trading can be profitable in volatile markets but demands deep market awareness and strict money management.

Benefits

No overnight exposure. Capital isn’t at risk from after-hours events.
Clear daily reset. Profits and losses are always realized before the next session.
High control. Traders manage risk minute-by-minute.
Intense during the trading session, but you can relax afterwards, since you have no positions open as you leave the screen. Some traders prefer this type of all-or-nothing stress and do not want to lay awake at night, fretting about open positions.

Risks

Requires constant attention. Missed alerts or delayed reactions can cause losses.
High emotional strain. Winning and losing daily tests psychology.
Capital intensity. Regulations often require minimum account sizes. Intraday margin calls can occur quickly.

Learn more about Day Trading by visiting DayTrading.com.

Scalping – A Specific Type of Day Trading

Scalping is an especially fast type of daytrading. Positions last seconds or minutes, and traders typically make dozens or even hundreds of trades a day, targeting small price moves. Scalping rewards discipline, technical precision, and fast execution but punishes hesitation or overconfidence. It’s the trading equivalent of sprinting: high effort, high heart rate, and not for everyone.

Benefits

Frequent opportunities. Small intraday swings appear constantly, even in markets that look stagnant at first glance.
No overnight exposure. Capital isn’t at risk from after-hours events. Just as with other types of daytrading, all positions will be closed before market close, avoiding overnight news shocks.
Immediate feedback. You know quickly whether your system works.

Risks

High transaction costs can erode an otherwise good looking plan. Spreads and/or commissions add up quickly and eat profits.
Extreme focus required. One mistake can erase hours of gains.
Very high stress during each trading session. Constant attention to screens and rapid decision-making drain energy.

Swing Trading

Swing traders hold positions for several days or weeks, capturing medium-term price swings within broader trends. They typically use both technical and fundamental analysis. Swing trading suits people with full-time jobs who still want active exposure to markets without intraday pressure.

Benefits

Less intense screen time than for day trading. You don’t need to watch every tick.
More breathing room than for day trading. Positions can recover from short-term noise.
More time to analyze before taking action. Suits traders who like this.
Better cost efficiency than day trading. Fewer trades mean lower transaction costs.

Risks

Overnight and weekend gaps. Price jumps during market closures can cause losses.
Patience required. Trades can stagnate for days before moving.
Exposure to unexpected events. Economic data or company announcements can reverse trades quickly.
You need to learn how to not obsess about open positions when you are away from the screen. Constantly worrying about open positions and checking markets on your phone as you go about your daily life can cause trader burnout.

Position Trading

Position traders take long-term views, holding trades for weeks, months, or years. They ride major market trends and typically base decisions on fundamental analysis. Position trading suits patient traders who want to capture long-term growth rather than react to more short-term volatility. The line between position trading and short-term investing can be blurry.

Benefits

Less noise. Short-term volatility matters less.
Lower costs. Few trades mean minimal commissions and slippage.
Potential for large returns. Big trends yield bigger moves over time.

Risks

Patience tested. Drawdowns can last months before recovery.
Capital tied up. Large positions can’t be exited quickly.
Exposure to global shifts. Policy changes, interest rates, or crises can reshape trends overnight.
Just as a swing trader, you need to learn how to not obsess about open positions.

Momentum Trading

Momentum traders buy assets that are rising and sell those that are falling, betting that trends continue. The aim is not to predict a trend before it happens; it is simply to exploit trends that are already happening. Momentum trading rewards decisiveness and adaptability but demands strict stop-loss rules.

Benefits

Simple logic. Follow strength, avoid weakness.
Powerful during strong trends. When markets run, momentum compounds fast.
Can be adapted to different time horizons.

Risks

Sharp reversals. Momentum collapses quickly when sentiment shifts.
Requires timing skill. Late entries can trap traders at peaks.
Hype and panic often exaggerate market moves.

Range Trading

Range traders buy near support levels and sell near resistance, assuming prices will continue bouncing between them. Range traders are typically highly skilled technical analysts. Range trading suits calm markets and disciplined traders who can accept small, frequent profits.

Benefits

Predictable structure. Clear entry and exit points.
Works well in quiet, sideways markets where many other strategies struggle.
Frequent small profits. Repeated plays within established levels.

Risks

Breakouts destroy the setup. Once price escapes the range, losses mount fast.
False signals common. Markets often tease breakouts before reverting.
Limited upside. Gains are capped within the range width.
Frequent small profits can be eroded by trading costs.

News Trading

News traders exploit volatility caused by news. e.g. the release of economic data, earnings reports, or political events. They position before or react immediately after announcements. News trading is a high-risk, high-reward approach best left to experienced traders with fast trading infrastructure and calm nerves.

Benefits

Fast rewards. One strong move can generate outsized profit.
Can be based on clear calendar events. Economic releases are predictable.

Risks

Slippage. Fast markets mean orders fill far from intended prices.
Widened spreads. Brokers often raise transaction costs during news.
Unpredictable reactions. Markets can move opposite to logic.

Algorithmic Trading

Algorithmic trading uses coded strategies to execute trades automatically when certain conditions occur. Automation works best for traders who understand both programming and risk management. Note: Stay away from the get-rich-quick scheme sellers that make algorithmic trading sound like a low risk and low effort money-machine.

Benefits

Emotion-free. Removes human error and hesitation. You program in advance, when you are calm.
Backtestable. You can test performance over historical data.
24-hour operation. Systems can monitor multiple markets simultaneously. Trading robots do not get tired.

Risks

Technical failure. Code errors or disconnections can cause losses.
Overfitting. You can test performance over historical data, but strategies that perform well in backtests may fail live.
Limited adaptability. Algorithms can’t easily adjust to new market conditions.
Your trading platform and broker-market connection might not be fast enough for the strategy you programmed.

Copy Trading

Copy trading lets users replicate the trades of other traders on a trading platform. It can be automatic or manual. Copy trading can help beginners learn by observation, but should never replace independent learning and understanding.

Benefits

Accessible to beginners.
Transparency. You can track others’ performance history.
Diversification. Follow multiple traders across markets.

Risks

Dependency. Your success depends entirely on someone else’s judgment.
Copy trading is appealing to beginners, but being a beginner can also make it difficult for you to make the appropriate copy trading choices and evaluations, and correctly understand the risks involved.
Inconsistent performance. Good traders have losing streaks like everyone else. You can track others’ performance history, but past profits do not guarantee future profits.
Lag vs. control. Manual copy trading increases control, but you might not be fast enough to profit form the setups. Automatic copy trading is faster, but reduces control.

High-Frequency Trading (HFT)

HFT is a type of automated trading that involves using powerful computers and low-latency connections to execute thousands of trades per second, exploiting tiny inefficiencies in pricing. HFT is an institutional activity, shaping liquidity but rarely accessible to retail market participants.

Benefits

Extremely fast execution. Captures micro-opportunities unavailable to humans.
High consistency and can be profitable on many different types of markets.
The normal benefits of automation, e.g. avoiding emotion-driven decision making. The robot never gets tired and can be active 24/7.

Risks

Infrastructure cost. Requires expensive technology and typically also co-location near exchanges.
Huge volumes require big capital commitments.
Regulatory scrutiny. Tight controls due to the potential for market manipulation.
Unrealistic for individual retail traders in most scenarios. This is an area dominated by huge trading firms and similar. Be suspicious of anyone who tries to sell you a HFT setup for retail use.

Picking the Right Broker for Your Trading Strategy

Choosing a broker is not a hunt for the lowest fee on a glossy landing page; it is a complex decision about where your assets, orders, and personal data will live every day. A good broker becomes plumbing you rarely think about, because funds settle correctly, orders execute at the price you expect, tax information is correct, and withdrawals are processed according to plan. A low-quality broker, on the other hand, can quickly turn routine trading into ongoing disputes about anything from slippage and swap fees to stalled withdrawals. It should also be mentioned that there are quite a few outright scammers out there posing as brokers, and you certainly do not want your money and personal data to end up in their clutches.

Instead of simply picking the broker who happens to run the best advertising campaign right now, it is advisable to put together a solid broker-picking strategy that you can employ both today and later, as your broker needs may shift. Yes, it might sound boring, and you are eager to get started trading, but broker selection is extremely important for your bottom line. Your choice of broker and trading account will impact pretty much every aspect of your trading experience, and the wrong broker can turn any otherwise sound trading plan into a loss-generating project.

The goal is to build a due-diligence process you can reuse, one that filters for factors such as regulation, trustworthiness, operational soundness, execution quality, and total cost in your instruments and timeframes. Think in terms of suitability, not perfection. No broker will be the cheapest, fastest, most feature-rich, and most protective all at once. You are choosing a set of trade-offs that suits your instruments, time horizon, temperament, and jurisdiction. If your edge relies on carrying positions for ten sessions, you will accept a slightly wider entry spread for superior swap and accurate corporate-action handling. If your edge relies on micro-timing the open, you will accept higher data fees and a steeper learning curve for a platform with hotkeys and rock-solid routing. The correct choice is the one that lets you follow your plan with the least friction, and keeps your money safe, segregated and retrievable.

Turn the broker-selection process into a short document you reuse whenever a new broker tempts you or your current broker becomes less suitable for you than before. One page is enough. Include points such as legal entity, financial services license, client-money treatment, compensation scheme, execution model and disclosures, instruments and order types supported, platform behavior in stress, fee schedule applied to your own trade pattern, margin and liquidation mechanics, overnight financing math, reporting quality, support response time with real ticket numbers, and a verified withdrawal. When the boxes you have elected to include are ticked with evidence rather than assumptions, you have a decision you can defend to yourself six months later.

BrokerListings is a good website that makes the task of finding the right broker a lot easier. BrokerListings.com makes it easy to compare brokers.

Define the trading you will actually do

Start by writing down your detailed trading strategy. It will include the answers to questions such as what you will trade, how long you will hold, and which order types you will need to express your plan.

Different assets and instruments come with different legal and operational consequences, and you also need a broker that has a good offering, and cost schedule, for exactly the assets and instruments your plan rely on. A broker that is great for buying and selling U.S. blue-chip stocks might not be suitable for interest rate futures, forex, vanilla options, commodity CFDs, cryptocurrency, and so on. Vanilla options traders tend to need complex-order books, reliable Greeks, assignment behavior that matches exchange rules, and explicit treatment of exercise requests before cutoffs. Futures traders will look for exchange connectivity, span margin visibility, depth-of-market performance during news, and rollover mechanics that do not surprise you on first notice.

Time horizon plays a vital role in broker selection, and can also impact which specific account type you should pick (when brokers are offering more than one). Day traders care about low latency routing, per-share or per-contract pricing, marketable-limit protection bands, and intraday margin policy. Swing traders care more about overnight financing, borrow fees for shorts, dividend and corporate-action adjustments, and platform stability around the open and close. Position traders will value custody quality, tax reporting, fractional shares, and dividend handling over nanosecond speed.

Once you state time horizon, instruments, and order behavior in plain terms, many brokers fall out of scope without further work because they simply do not support the rail you need with the detail your method requires.

Regulation

Authorization is extremely because it determines your rights and how those rights will be enforced if there is an issue. Look up the legal entity that would hold your account and confirm it is licensed to deal with retail clients you in your country. Read the permissions scope, not just the registration number. A payments firm is not a securities dealer, and simply having a company registered in a certain jurisdiction is not the same as having permission to hold client assets and provide financial services to retail traders.

Which laws and financial authority that governs your broker will impact a wide variety of things, including whether client money must be held in segregated trust accounts, whether daily reconciliations are mandated, and whether an investor compensation scheme will pay back your money if the firm fails. Take note of leverage caps, negative balance protection rules, and any product interventions that apply to retail derivatives.

If the broker tries to onboard you through an offshore sister company, understand that this will introduce jurisdictional complexity. Stay clear of brokers who tries to herd you away to a sister company based in a jurisdiction where trader protection rules are weaker, e.g. concerning your dispute path, compensation coverage, and negative account balance protection. Some brokers will tempt you with higher leverage and big deposit bonuses in an effort to get you to sign on with a sister company.

Map the business model and the conflicts you can live with

Every execution setup embeds trade-offs. The goal is not to find a perfect model with no trade offs, it is to pick a model that declares them and controls them in ways you understand, and which are suitable for your particular situation.

A market-making model (dealer desk broker) can offer consistent spreads and instant fills in quiet conditions, but sits across from you on many trades. You want disclosure on internalisation policies, hedging thresholds, and how they manage toxic flow. Strict supervision from a financial authority with actual muscles become even more important, to mitigate the inherent conflict of interest that exists when your broker is also your counterpart in the trades.

An STP or ECN broker passes orders to external liquidity providers and is not your counterpart in the trades. You want to know who those LPs are, what last-look behavior they apply, and how often rejects or re-quotes occur in volatile windows. STP and ECN brokers are less likely to be setup for inexperienced traders and micro traders. Their typical client is an experienced trader who knows what they are doing and can afford to make fairly big deposits and trade regular sized lots (not micro lots or mini lots).

Brokers that route equities may use a smart order router or payment-for-order-flow arrangements. You want concrete evidence of price improvement and execution-quality statistics measured against the national best bid and offer or equivalent. If you trade options, you want the venue mix, complex-order book support, and handling of “do not reduce” flags around ex-dividend dates. If you hold CFDs or spot FX overnight, you want an explicit formula for swaps, the reference rates used, how they change on Wednesdays or during holidays, and how corporate actions flow into your P&L.

Price the full stack

Do not get hung up on just one cost. A trader that is advertising commission free trading might compensate themselves with wider spreads, and super-tight spreads are typically only offered by brokers who charge a commission. There are also brokers who will nickle-and-dime you in a myriad of ways to hide the true costs of using them.

You need to calculate the total cost of using this broker and account type for your specific trading strategy. Make sure you are aware of things such as spread or tick width crossed, explicit commissions, regulatory and exchange fees, borrow or locate charges for shorts, overnight financing, data subscription fees, and the quiet cost of slippage. Not all points will apply to your particular trading style, but you need to know which ones that will.

Build a small worksheet with realistic trade patterns from your trading strategy, including average trade size, average number of entries and exits per week, average hold time, and percent of trades held overnight. Apply each broker’s published schedule to that pattern. Add on other costs, e.g. deposit and withdrawal costs depending your plan for deposits and withdrawals. Especially for micro-traders, withdrawal processing fees can eat into profits in a noticeable way, particularly if your plan is to make frequent withdrawals instead of letting it stay to grow your account balance.

For equities, test per-share versus per-ticket pricing on your blotter. For futures, include exchange and NFA-style fees. For FX and CFDs, compare raw-spread-plus-commission accounts to spread-only accounts using typical rather than minimum spreads. For options, add per-contract costs and fees on assignments and exercises. Re-run the math with spreads widened to stressed but plausible levels, for example around major data releases. This is dull work that saves money every month because it blocks you from over-valuing a shiny headline spread while ignoring financing that eats your edge by Friday.

If you expect to move funds between base currencies, price the FX conversion spread, because small, frequent conversions can cost more than you think.

Evaluate execution where it actually hurts

Execution quality is revealed at the open and close, during halts and reopens, and into scheduled news. Place staged marketable-limit orders with a small protection band on liquid names at the bell and compare realized slippage across brokers. Send stop-limits through levels that routinely attract liquidity and check for partial fills you could have avoided with different routing. For FX and CFDs, record the spread and fill speed around a central-bank decision, then compare to your platform’s quoted historical tick data. For futures, watch depth collapse on a high-impact number and see whether your platform freezes, lags the tape, or keeps up. For options, test a simple vertical in a popular underlier and examine whether mid-price prints are honored or whether fills slip toward the natural in busy moments. Your goal is not perfection. Your goal is knowing how the broker and the platform typically behaves when conditions go from calm to messy, so you can size and place orders accordingly.

Evaluate custody, funding, and withdrawals before you scale

A broker handles your cash and your positions. That is custody in practice even if the firm uses a third-party custodian. Verify where client money is held, which banks are used, and if the broker is supervised by a financial authority that requires complete segregation of client funds from company funds.

Open with the minimum and test the payment method you will actually use, e.g. a bank transfer from and to your bank, a VISA card transfer to and from, or an e-wallet such as Skrill or Neteller for both deposits and withdrawals. Withdraw after a small profitable trade to confirm timelines, fees, and whether additional verification requirements appear only when you try to take money out. The cleanest marketing promise in the world is less useful than a short, uneventful withdrawal to your name.

In most jurisdictions, brokers are required to verify your identity and residency to combat money laundering and fraud, so that is not a red flag in itself (it can actually be a green flag). It is a red flag when a broker is bombarding you with a never ending line of verification requests, simply to stall your withdrawal or make it impossible to withdraw.

Match platform capability to your workflow

Platform fit depends on your strategy and personal preferences, so it is not possible to recommend a certain trading platform as superior to all the other in all situations. Just as with broker choice, platform choice is about priorities and trade-offs. Go through the arduous evaluation process is not fun and glamorous, but can be the difference between becoming a long-term profitable trader and wiping out an account due to platform-related issues.

If your entries come from higher-timeframe structure, you probably need strong charting tools, reliable session markers, anchored VWAP, volume-by-price, and the ability to stage bracket orders that attach automatically with stop and target sized from stop distance. If you trade intraday momentum, you might need to priorities depth or time-and-sales that does not lag, hotkeys for cancel-replace and flatten, and server-side OCO logic that survives a client disconnect.

If you plan on managing positions and your account from your phone (at least now and then), make sure the mobile app works well. Evaluating the platform on desktop, making a deposit, and then find out the platform sucks on a small screen is not the way you want to go.

If your trading strategy involved automation, you need a platform and broker that strongly supports this. Look for a stable API, paper trading that matches live behavior closely, version control, and rate limits that are documented.

Understand margin, leverage, and forced-exit rules for retail accounts in your jurisdiction

Leveraged trading and margin trading introduces additional risk, and should only be carried out by traders who fully understand the underlying mechanisms.

Read the broker’s initial and maintenance margin tables by instrument and the precise sequence that leads to liquidation, including threshold, grace window if any, order type used to liquidate, and whether partial liquidation attempts precede a full flatten.

Day-trade margin concessions and overnight requirements can differ sharply, so you need to know when they switch. For short selling of cash equities, understand locate procedures, indicative borrow rates, how often rates change, and forced buy-in policy if supply collapses. For derivatives, confirm how margin rises before major events or contract roll, how portfolio margin is calculated if available, and whether your hedges genuinely reduce requirement as theory suggests. You can only size positions responsibly when you can state, in your base currency, how much you lose and what gets liquidated if price gaps through your stop while you sleep.

Make sure you understand which safe-guards that apply to your retail account, e.g. leverage caps and negative account balance protection. Negative account balance protection provides a certain type of protection, but can also result in positions being closed automatically in situations where you would have preferred to ride out the market.

Model overnight costs and corporate-action effects if you hold beyond the bell

Swing and position traders live with the slow leak or credit of financing. For FX and CFDs, examine long and short swap rates on instruments you will actually hold, note the triple-swap day each week, and compare how brokers treat holidays. For equity and index CFDs, learn how dividend adjustments post and which side of the book pays or receives. For cash equities, understand tax withholding on dividends and whether your broker supports dividend reinvestment with or without fees. For options, simulate theta decay and assignment scenarios into ex-dividend dates and ensure your broker’s early-exercise windows and instructions match exchange deadlines. The purpose is to prevent surprises. If you plan to hold ten sessions, price ten sessions of carry before you ever press buy.

Test reporting, tax data, and auditability

Clean books reduce friction at tax time and when you need to diagnose performance. Download daily confirms, end-of-month statements, and a full trade history with timestamps, venue, route or LP, fees itemized by type, and corporate-action adjustments. Make sure that you can export machine-readable files rather than screenshots. Confirm that FIFO, LIFO, or specific-lot selection is supported if this is relevant to your jurisdiction. Confirm that dividend and interest statements reconcile to custody.

If you use multiple brokers, standardize a simple sheet that ingests their exports so you can compare slippage, fees, and win-rate by venue or instrument.

A broker that makes records hard to obtain is making accountability hard, and this is sometimes a deliberate choice.

Build a small live pilot before committing capital

Starting with a demo account is great, but eventually you need to transition to live trading (real money trading) and this should be done using small amounts. No matter how great things where going during demo trading, you need to gradually get used to the psychological effects of having real money on the line, and build up your tolerance step by step.

You should also be aware that some demo accounts represents a “perfect” trading environment, which is why you should start live trading with tiny amounts and be on the look out for differences between the demo environment and the real-money experience. You might for instance begin to notice spreads that widen at odd times, swaps that differ from the table, mobile notifications that fail, or support staff that quotes a script rather than actually solve a ticket.

Run a defined two-to-four-week pilot that mirrors your real routine. pre-market or pre-session preparation, a couple of entries in your primary setups, at least one overnight hold if your plan includes it, a borrow request if you short, and a withdrawal at the end. Record issues with timestamps and order IDs so you can ask precise questions. If the pilot feels quiet and boring in the best way, you likely found a workable fit.

Keep the relationship under review without constant churn

Brokers evolve. Fee tables creep, routing logic gets tweaked, data vendors change, margin policies tighten before events, and mobile apps improve or regress. Schedule a light quarterly review against your checklist using fresh statements and a couple of deliberate stress tests. If the fit still matches your method and the numbers still add up, resist platform hopping, because switching costs and learning curves are real. If the broker drifts away from what you need (e.g. due to higher financing, frequent outages, or slower support), shrink exposure and start considering a full transition.