How a trader makes money
You make money when the price moves in the direction you expected, and lose when it moves against you. You can profit from rising prices by buying (going long) and, with most brokers, from falling prices by selling (going short).
- You think gold will rise after weak US jobs data and buy at $2,600 per ounce.
- Gold rises to $2,620 and you close the trade: you made $20 per ounce traded.
- If gold had fallen to $2,580 instead, you would have lost $20 per ounce.
Every trade has someone on the other side. When you buy, someone sells to you. That person, a bank, a fund or another trader, thinks the opposite. Your edge has to come from somewhere, which is why preparation matters.
Trading vs investing
| Trading | Investing | |
|---|---|---|
| Time you hold | Minutes to weeks | Years to decades |
| Goal | Profit from price moves | Grow wealth as companies and economies grow |
| Typical tools | Forex, CFDs, futures, leverage | Shares, ETFs, bonds, property |
| Time needed | Hours a week, active | Little, mostly passive |
| Risk | High, especially with leverage | Lower over long periods, but never zero |
Both are valid, and many people do both: they invest for the long term with most of their savings and trade with a small part they can afford to lose.
Types of traders
- Scalpers hold trades for seconds to minutes and aim for a few pips each time.
- Day traders open and close trades within the same day. See Day trading.
- Swing traders hold for days to a few weeks to catch one larger move.
- Position traders hold for weeks to months, often based on fundamentals.
Pick the style that fits your life. If you work 9 to 5 in Nairobi or Johannesburg, swing trading usually fits better than scalping the London session from your desk.
What can you trade?
The most popular markets for retail traders in Africa are forex (currency pairs like EUR/USD or USD/ZAR), gold and other commodities, indices like the US 500, and stocks, either directly or as CFDs.
A CFD (contract for difference) lets you trade the price of an asset without owning it. CFDs allow leverage and short selling, which makes them flexible and risky at the same time.
Key takeaways
- Trading is buying and selling to profit from price changes, up or down.
- Investing is long-term ownership; trading is short-term and more active.
- Choose a trading style that fits your daily schedule.
- CFDs let you trade prices with leverage, which magnifies gains and losses.
Do this today
Open a chart of EUR/USD and gold on your demo platform. Write down the price now and again tomorrow at the same time. Note how much each moved.
Quick quiz
Answer all questions to mark this lesson as complete. Your progress is saved on this device.
Questions people ask
Is trading legal in Kenya and South Africa?
Yes, when you use a broker licensed locally: the Capital Markets Authority (CMA) in Kenya or the Financial Sector Conduct Authority (FSCA) in South Africa. Check any broker with our broker check.
What is the difference between trading and gambling?
A trader has a tested plan with a positive expectancy and controls risk on every trade. Without those, trading behaves like gambling.
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Educational content only, not financial, investment or tax advice. Trading forex and CFDs carries a high risk of losing money. Look up any term in the trading glossary.