Using your money to fund your business eliminates the need to take out loans or secure funding from external investors. It also lets you control your business operations and retain all profits. However, few entrepreneurs have that privilege because their savings can’t successfully fund or keep the businesses running. Thankfully, there are several alternatives to secure the needed funds. This article examines how entrepreneurs can use online trading to achieve their dreams.
What Is Online Trading?
Online trading involves buying and selling financial instruments such as stocks and currency pairs through an online trading platform or mobile app. The main idea is to generate higher profits that exceed the typical buy-and-hold investing strategy. While some investors may be satisfied with annual returns that outperform inflation, traders typically desire a more significant monthly percentage return.
Types of Online Trading
There are different markets available — entrepreneurs simply need to learn about their preferred instrument and start trading.
Forex Trading
The forex market determines the exchange rate for different currencies. Forex trading is simply converting one currency to the other to profit from the changing rates. Entrepreneurs can make money in two ways:
- Buying currency pairs at a lower price and selling at a higher price, expecting the base currency (the first in the pair) to rise in value.
- Anticipating that the base currency will decline when they sell at a higher price and repurchase it lower.
They pocket the difference between the opening and closing price.
Stock Trading
This involves buying and selling shares in different companies to profit from short-term price movements. Traders focus on daily or weekly price changes, which differs from long-term investors who hold stocks for years.
Commodity Trading
Commodities are another way for entrepreneurs to trade the financial markets. Investors often turn to commodities for returns when markets fluctuate because commodity prices usually move in contrast to stock prices. Some of the most common examples include gold, corn, and crude oil.
Crypto Trading
Compared to traditional asset classes, crypto trading is relatively new but has gained massive popularity as an alternative to mining, which is costly and time-consuming. Traders aim to capitalize on price swings in cryptocurrencies like Bitcoin, Ethereum, and others — often through online exchanges or trading platforms.
Step-by-Step Guide on How Entrepreneurs Can Build Capital for Start-Ups
Entrepreneurs can use this structured approach as a guide on how to begin their trading journey:
Step 1: Understand Your Chosen Market
The first step is to learn about your preferred market (what to trade). We’ve already discussed some popular options, such as forex and stocks. You’ll also need to learn how to trade. The good thing about online trading is that there are numerous resources available. You must understand key market terms and how and why assets fluctuate. There are many forex courses for beginners if you pick the currency market as your first choice.
You can learn about how to trade any market with resources. Here are fantastic resources to start with:
- YouTube: A beginner-friendly platform
- Coursera or Udemy: Trading courses
- TradingView: A social trading platform
Step 2: Choose a Trading Platform and Broker
You’ll need a trading platform and a broker to access financial markets. A broker acts as the intermediary between you and the market, while the trading platform is the software you use to place trades and analyze the market. Some of the most popular trading platforms include:
- TradingView: Ideal for charting and technical analysis
- MetaTrader 4 (MT4) & MetaTrader 5 (MT5): Widely used for forex and commodities
There are some factors to consider before choosing your preferred broker. They include
- Regulation: They must have the license to offer brokerage services in your country
- Fees or Spreads: Competitive fees or spread
- Available assets: They must offer your chosen market
- Customer support: Excellent support in case you need help with anything
Step 3: Start With a Demo Account and Develop a Trading Plan
A demo account allows you to trade with virtual money. This helps you practice your strategies and familiarize yourself with the market.
There are different strategies entrepreneurs can employ.
- Based on the analysis technique: Fundamental analysis vs. technical analysis.
- Based on time period: Day trading, swing trading, scalping, etc.
Step 4: Prioritize Risk Management
There is no way to avoid risk in trading, but you can control it. This is the key concept of risk management. The first step is to calculate your win-loss ratio. If this number adds up to long-term profitability, you are well on your way to successful trading.
For example, an entrepreneur (X) makes 50 trades per month. The goal of each trade was to make $150 from a position opened with $100. After reviewing the trades for the month, X wins half of the trades (wins 25 and loses 25).
Each winning trade earns $150, so 25 wins bring in $3,750. Each losing trade costs $100, so 25 losses total $2,500. At the end of this period, the net profit is $1,250. Even though X only won 50% of the trades, the risk-reward ratio ensured that the gains outweigh the losses.
Other techniques to manage risk in online trading include:
- Keep emotions out of trading decisions
- Diversify and hedge
- Set stop-loss and take-profit points
- Only put 1% of your capital in a single trade
Step 5: Open a Live Trading Account and Start Small
The next step is to open a live trading account once you’ve gained confidence through demo trading. Start with a small amount and gradually increase your capital as you gain experience.
Trading Can Support Entrepreneurial Goals
Online trading offers entrepreneurs a practical way to grow their funds and build the capital needed to sustain their businesses. Like any business venture, trading requires patience and continuous learning. For entrepreneurs willing to put in the effort, it can become a major tool to bring their business dreams to life.
Photo by TabTrader; Unsplash
