Market basics
At first glance, trading can be overwhelming. There may be many new words you’ve never heard before and what seems like endless numbers and graphs. Learning the ropes of any new venture takes a little time when you’re just starting, so we’ll help you learn the basics of trading today.
What is trading?
In the financial market, trading is the buying and selling of financial instruments that can be categorized as:
- Foreign exchange (forex)
- Company shares
- Stock market indices
- Commodities
- Cryptocurrencies
Businesses and people use these financial instruments daily. For example, when someone travels to Europe, they need to buy euros to pay for things when they are there. When exchanging their local currency for euros, they actively participate in the forex market. Large international companies do this as well. US companies that make money selling their goods and services worldwide will have to convert some of their earnings to US dollars to pay salaries and taxes. Another real-world example is a computer manufacturing company needing a steady supply of gold and silver to create intricate computer parts. When the company orders precious metals, it actively participates in the commodities market. On the other hand, traders are simply looking for ways to take advantage of the changes that occur in these prices. The main idea is to buy low and sell high.
What is CFD trading?
One popular way of trading online is using CFDs or contracts-for-difference. A CFD is a financial contract that allows a person to trade on the price changes of the instrument, without actually owning it. Even though they represent the underlying asset's value, physical goods or securities are not delivered when trading CFDs. They can be stocks, indices, commodities, currencies, and cryptocurrencies and are traded through a platform on your computer or cellphone.
What is a financial market?
A financial market is a place where buyers and sellers come to trade. The term “market” is used loosely and can mean any of the stock markets where instruments are listed. With the evolution of online trading, you can now trade different instruments from the comfort of your home. You can access instruments (such as CFDs) traded worldwide through an online broker. Modern brokers offer simple access with low initial costs, so there’s never been a better time to get into trading.
Why trade at all?
Inflation is a process that eats away at the world’s monetary value. Due to this process, your money doesn’t hold the same value now as it did a year ago. Some people try to avoid their money being devalued year after year by investing in financial instruments. Trading is about balancing inherent risk with potential reward. You want to pick instruments more likely to move in your forecasted direction. If you do proper research and trade smart, the rewards of trading might surprise you.
