Investing for Beginners: Everything You Need to Know

In this guide, we explain how investing and trading work, the differences between them, and which instruments you will encounter most often.

What is investing?

When you invest, it means you are growing your capital over the long term with the aim of building wealth gradually. You usually buy assets and hold them for months, years, and sometimes even decades. You profit from growth in their value, dividend payments, or interest. Short-term market fluctuations are not crucial for you. What matters far more is the overall trend over a longer time horizon.

The most common investment instruments you will come across include shares, ETFs, mutual funds, and bonds. Investing is often linked to regular contributions and making use of compound interest.

However, it is important to realise that even long-term investing carries risk. The value of your investments can fluctuate and, in extreme cases, you may suffer a loss of part of your capital, especially if your timing is poor or your diversification is insufficient.

What is trading?

When you trade, you actively speculate on the price movement of financial instruments. You do not focus on the long-term value of an asset, but instead try to take advantage of short-term price movements. Trades may last a few minutes, hours, or days.

Trading most often uses derivatives, especially CFDs, which allow you to speculate on both rising and falling markets. These instruments often involve leverage, which multiplies not only potential profits but also losses.

Trading is significantly riskier than investing. Without experience, risk management, and a clear strategy, it can lead to a loss of capital.

Differences between investing and trading

The main difference lies in the time horizon, approach to risk, and overall strategy. When you invest, it is a long-term approach that emphasises stability and gradual growth in value. When you trade, by contrast, it is short-term speculation that requires active position and risk management.

In practice, a combination of both approaches often works well. A larger part of your capital can work for you in long-term investments, while a smaller part can be set aside for active trading. However, this approach only makes sense if you fully understand the risks and have clearly defined rules.

CFDs and underlying assets

A CFD (Contract for Difference) is a financial derivative that allows you to speculate on the price movement of an asset without actually owning it. You do not deal with buying the asset itself, only with the difference between the entry and exit price.

You can find a detailed explanation in our guide what CFDs are and how they work.

CFDs can be used to trade shares, forex, commodities, cryptocurrencies, indices, and ETFs. While shares, ETFs, and cryptocurrencies can also be traded as real assets, forex and commodities are in practice traded primarily in the form of CFDs.

CFDs can be traded using leverage, which means you can control a larger position size with less capital. This significantly increases profit potential, but also the risk of loss.

Forex

Forex (Foreign Exchange) is the largest financial market in the world, where currency pairs are traded. When trading forex, you speculate on changes in the exchange rate between two currencies, for example EUR/USD or USD/JPY. If you expect the first currency in the pair to strengthen, you open a buy (long) position. If you expect it to weaken, you can speculate on a decline through a sell (short) position. Forex is a highly liquid market that operates 24 hours a day during the working week.

Commodities

Commodities are basic raw materials traded on global markets. The most commonly traded commodities include gold, silver, oil, natural gas, and agricultural products such as wheat, maize, or coffee.

Using CFDs, you can speculate on both rising and falling commodity prices without needing to own them physically. Commodity prices are often influenced by geopolitical events, supply and demand, inflation, and economic developments. Commodities are also often used as a portfolio diversification tool because their performance may differ from equity markets.

Cryptocurrencies

Cryptocurrencies are digital assets that operate on blockchain technology. The best-known cryptocurrencies include Bitcoin, Ethereum, and Binance Coin. Their value is influenced mainly by investor demand, technological development, regulation, and overall market confidence.

Trading cryptocurrencies through CFDs allows you to speculate on price movements without needing to own the cryptocurrencies themselves or manage a crypto wallet. As with other CFDs, you can use leverage and trade both rising and falling prices. However, cryptocurrencies are generally considered highly volatile assets, which means higher profit potential but also significantly higher risk.

Investing in shares and ETFs

Shares represent an ownership stake in a company. When you buy a share, you become a co-owner of the business and can profit from its growth, an increase in the company’s value, or dividend payments. The share price is influenced by the company’s performance, the economic environment, investor sentiment, and global events.

ETFs (Exchange Traded Funds) are exchange-traded funds that track the performance of a specific index, sector, commodity, or investment strategy. Unlike individual shares, ETFs allow you to invest in an entire market or part of it through a single trade. This makes them a simple way to achieve broad diversification and reduce the risk associated with investing in a single company.

You can invest either in real shares and ETFs, where you become their actual owner, or through CFDs, which allow you to speculate on price movements without owning the underlying asset. CFDs also allow you to use leverage and speculate on falling prices, which significantly increases risk.

We explain the differences between these approaches in detail in the article CFDs vs real shares.

Over the long term, shares and ETFs are among the most widely used investment instruments because they have historically offered attractive capital growth potential. At the same time, they require patience, the ability to handle market fluctuations, and a properly set investment strategy.

Mutual funds

Mutual funds pool the financial resources of a large number of investors, which are then managed by a professional portfolio manager. The investor buys fund units, the value of which depends on the performance of the investments held by the fund.

Funds may invest, for example, in shares, bonds, property, or a combination of these. There are funds focused on specific regions, sectors, or investment strategies. Mutual funds are often used by investors who want to invest for the long term but do not have the time or experience to manage a portfolio themselves.

Unlike ETFs, most mutual funds are traded only once a day at the current net asset value of the fund unit. Important factors when choosing a fund include fees, investment strategy, and long-term performance.

Bonds

A bond is an investment instrument that represents a loan to a government, company, or another institution. When you buy a bond, you lend money to the issuer, who commits to paying you regular interest (a coupon) and returning the original invested amount when the bond reaches maturity.

Bonds are generally considered a more conservative investment than shares because their returns tend to be more stable. They are often used as a stabilising element in a portfolio or as a tool for investors who prefer lower risk.

However, the risk level of bonds can vary significantly depending on the type of issuer. Government bonds are usually considered safer, while corporate bonds may offer higher returns but also higher credit risk.

CopyTrading – copying traders

CopyTrading is an investment approach that allows you to automatically copy the trades of experienced traders. Once you choose a trader you want to follow, your investment automatically adjusts to that trader’s decisions. If they open, modify, or close a trade, the same action is carried out in your portfolio in proportion to the capital you have allocated.

This approach is particularly popular among beginner investors who want to enter the financial markets but do not yet have enough experience or time to analyse markets themselves. However, CopyTrading is also used by more advanced investors as a way to diversify a portfolio or gain inspiration for their own strategies.

When choosing a trader, it is important to look not only at historical performance, but also at trading style, level of risk, consistency of results, and length of trading history. Every trader uses a different strategy, time horizon, and approach to risk management, which can significantly affect investment results.

You can find more information in our overview of copy trading experiences and in the list of the best traders to copy.

So how should you start investing?

Starting to invest means first of all clarifying your investment goal, time horizon, and risk tolerance. You will choose a different strategy if you are investing for retirement several decades from now than if you want to grow capital over a shorter period.

The first step should be to build a financial reserve for unexpected expenses. Investing should only be done with money you will not need in the short term. After that, it is sensible to decide whether you want to invest passively, actively, or combine several approaches.

Passive investing is often associated, for example, with regular investments in ETFs that track long-term market growth. More active investors may use share trading or CFDs. Another option may be copy trading, which allows you to take part in trading without having to analyse the markets yourself.

From our perspective, a combination of several approaches makes sense, for example long-term investing supplemented by occasional speculation using leverage. However, such a strategy requires a good understanding of the risks and clearly defined capital management rules.

It is also important to proceed systematically, invest regularly, diversify your portfolio, and avoid giving in to emotions during short-term market fluctuations.

Risk warning

Every investment instrument carries a certain level of risk. Financial markets are influenced by the economic environment, political events, changes in interest rates, and investor sentiment. The value of investments can therefore fluctuate and, in some cases, part or all of your capital may be lost.

Higher potential returns are usually linked to higher risk. This applies especially to CFDs. This instrument can significantly increase potential profits, but also losses.

Risk can be reduced to some extent through portfolio diversification, proper capital management, realistic expectations, and a long-term investment horizon. However, no strategy can eliminate risk entirely, so it is important to invest only money whose possible loss would not threaten your financial stability.

Where next?

This article summarises the basic principles of investing and trading and provides an overview of the most common instruments you may encounter in the financial markets. If you want to continue and gain deeper knowledge, we recommend focusing on education, testing strategies, and gradually building your investment experience.

If you want to explore the topic in more depth, we recommend visiting the Forbino educational academy, where you will find more practical guides, strategies, and explanations of individual investment instruments.