If you’ve ever wondered “How does trading work?” or “How do traders make money?”, you’re not alone. Trading has become increasingly popular thanks to accessible online platforms and the ability to participate in a wide range of markets from the comfort of your own home. Whether you are looking to diversify your portfolio, supplement your income, or simply learn more about the financial world, understanding the basics of trading is the essential first step into the world of online trading. 

The basics: What is trading?

Trading is the act of speculating on price movements in financial markets, aiming to profit whether prices rise or fall. Unlike traditional investing (where you own underlying assets such as shares or bonds), trading with online brokers like Deriv.com uses contracts like CFDs (contracts for difference) and options. With these products, you never own the asset — you’re simply predicting whether its price will move up or down. This adds flexibility, allowing you to respond quickly to market changes and potentially profit from both positive and negative movements.

Why do people trade? 

Millions of people globally are trading every day. But who is trading, and why? Some are experienced traders and professionals, while many are everyday individuals, just like you, who want to:

• Take advantage of price swings for potential profit
• Diversify what they do with their savings
• Respond instantly to global economic events and news
• Practise and grow their financial skills online

With online brokers like Deriv, trading is now accessible to almost anyone that is over 18 years of age and has a stable internet connection. 

How does trading work?

At its heart, trading means opening a position based on your prediction of whether a market will rise or fall. You do this by buying (going long) if you believe prices will go up, or selling (going short) if you believe they’ll go down.

The price you see for any asset is set by supply and demand in global markets, influenced by news, economics, and even trader sentiment. On Deriv, you use CFDs or options to speculate on these price movements — and you can potentially profit from both upward and downward movements.

Trading vs investing: The key differences

This raises a common question: Trading vs investing, which is more profitable?

• Trading: You speculate on short- or medium-term price movements with CFDs or options. You never own the actual asset, and you can potentially profit from falling prices just as likely as from rising ones. Typically, traders look for quicker returns but face higher risk.
• Investing: You buy and hold real assets (like shares or property), hoping their value increases over years. Investors profit mainly from growth and sometimes dividends, with less frequent trades and usually lower risk.

Markets to trade 

One of the first steps to learning how you can start trading is understanding what you can trade. On Deriv, you can access a wide selection of global markets:

• Forex: Trade the movement of global currencies, such as EUR/USD or GBP/JPY.
• Derived Indices: Exclusive to Deriv, these synthetic indices behave like real markets and are available 24/7.
• Stocks: Take positions based on the price of leading companies, without owning their shares.
• Stock Indices: Speculate on the performance of entire markets, like the S&P 500 or FTSE 100.
• Commodities: Trade on assets like gold, silver, or oil, which move on global supply and demand.
• Cryptocurrencies: Capture the volatility in markets like Bitcoin or Ethereum, available around the clock.
• ETFs (Exchange-Traded Funds): Take positions on the price movements of baskets of assets, sectors, or commodities for broad market exposure in one trade.

CFDs vs options trading: What’s the difference?

After you’re familiar with markets to trade, it is time to learn how you can trade on those markets. At Deriv, you can choose between two popular ways to trade: CFDs (contracts for difference) and options. Both products allow you to speculate on price movements without owning the underlying assets, but they work differently and cater to varying risk appetites and trading strategies.

Understanding the key differences between CFDs and options can help you decide which style suits your goals, experience, and approach to risk. Here’s a simple comparison to help you see how each one functions on Deriv’s platforms:

Both CFDs and options have unique features. Some traders prefer the flexibility and range of CFDs, while others favour the defined risk and simplicity of options. On Deriv, you have the choice to explore both, depending on your style and trading goals.

Different types of trading

The next thing you need to know is that there’s no single way to trade. The approach that suits you best may depend on your goals, personality, and schedule. A few common trading strategies that different traders opt for are:

• Scalping: Entails making numerous quick trades throughout the day aiming to capitalise on tiny price changes, often holding positions for just seconds or minutes.
• Day trading: Involves opening and closing trades within the same day to potentially profit from small, short-term price movements.
• Swing trading: Involves holding trades for several days or even weeks, aiming to capture larger price trends.
• Position trading: Involves holding trades over weeks or months, focusing on major trends and typically making fewer decisions.
• Long-term trading: Maintains positions for months or even years, relying less on frequent market monitoring and more on long-term analysis.

How can you start trading?

If you’re curious to try out trading for yourself, here are a few steps to get started: 

1. Open your free account:
Register in minutes on Deriv with just your email address. Getting started is quick and completely free.

2. Choose your trading platform:
Select the platform that best matches your preferred trading style.

• For options trading, use Deriv Trader, SmartTrader, or Deriv Bot—all intuitive platforms focused on simplicity and automation.
• For CFD trading, choose between Deriv MT5, Deriv X, or Deriv cTrader—each offers advanced tools and a familiar layout for multi-asset trading.

3. Explore your markets:
Take your pick from forex, stocks, derived indices, stock indices, commodities, cryptocurrencies, and ETFs. Deriv gives you access to all these markets from a single account.

4. Practise on a demo account:
Start with virtual funds to learn how trading works, test your strategies, and get used to each platform’s features—completely risk-free.

5. Monitor and learn:
Track your trade outcomes, read more trading guides, and make use of Deriv’s built-in risk management tools to develop your skills and refine your approach.

You can always use the demo account to get to know trading across all Deriv platforms and markets. Once you feel confident in your skills and have developed a strategy that works for you, you can smoothly transition to your real account and begin trading with real funds. Remember, steady practice and continuous learning are key to building confidence on your trading journey.

What are the risks of trading?

As with many opportunities for reward, trading comes with important risks to consider before you commit real funds. Being aware of these risks helps you make smarter, more informed choices as you develop your trading skills.

Volatility:
Financial markets can be highly volatile, which means that prices can move sharply and unexpectedly in a short period of time. Major global events, economic news, or even simple changes in trader sentiment can trigger rapid swings. While volatility can create opportunities for profit, it also increases the chance of sharp losses—especially for those trading without a clear plan or risk controls.

Leverage:
One of the features of CFD trading is leverage, which lets you control a larger market position with a relatively small deposit (known as margin). While this means that a small amount of capital can yield a significant potential profit if the market moves in your favour, it also means that potential losses can be magnified. If the market goes against your position, you could lose more than your initial deposit.

Total loss:
With both CFDs and options, it’s possible to lose the full amount you’ve placed on a trade. This is especially true in fast-moving (volatile) or highly leveraged situations. For options, your maximum loss is limited to your initial stake, but with CFDs, your losses can exceed your initial deposit if the market moves quickly and you don’t have protective measures in place.

No asset ownership:
When you trade CFDs or options on Deriv, you are speculating on market movements, not buying the actual underlying asset. This means you do not receive any additional benefits associated with ownership, such as dividends from shares or voting rights in a company.

Smart traders manage these risks with several tactics. They use stop-loss orders to limit potential losses on each trade, size their positions appropriately, and never risk more than they can afford to lose. It’s also highly recommended to practise on a demo account first—using virtual funds to test your strategies and get comfortable with the platform before moving on to real-money trading.

So — what is trading all about? In short: it’s a flexible way of speculating on global financial markets, aiming for profit from price swings, all without owning the underlying asset. Platforms like Deriv let anyone take part via straightforward CFDs and options, spanning forex, stocks, indices, commodities, cryptocurrencies, and more.

Take your first steps using Deriv’s demo account, explore the markets, and build your trading confidence today.