What is financial trading?
Financial trading is the buying and selling of financial assets. This is done in one of two ways: through the exchange or through the cashier.
What is financial trading?
Financial trading is the buying and selling of financial assets. This is done in one of two ways: through the exchange or through the cashier. An exchange is a highly organized trading platform where you can trade a specific type of instrument.
What is traded in financial trading?
Financial instruments such as stocks, forex, or bonds, or derivatives such as CFDs, futures, or options can be traded. Whatever the instrument traded, the expected result is always the same: making a profit. If you buy an instrument at a low price and sell it at a higher price, you are making a profit. If you sell an instrument for less than you bought it, you will lose.
Who is trading?
In the financial markets, millions of companies, individuals, institutions, and even governments trade at the same time. But what is a trader? A trader is defined as a person who buys and sells financial instruments for the purpose of making a profit.
Some traders stick to a specific instrument or asset class, while others have more varied portfolios. Some do a lot of research before taking a trade, others read charts and follow trends. But all trades have one thing in common – they all carry risk. Risk is a key concept in all types of financial trading. Regardless of which instrument is being traded, who is trading it, or where the trade is taking place, balancing potential reward and risk is the key to a successful trading strategy.
What markets can you trade?
Thousands of different financial markets are traded, including stocks, indices, cryptocurrencies, and forex.
Trading versus investing: what's the difference?
The difference between trading and investing is how you make a profit and whether you own the asset. Traders try to profit from buying low and selling high (long long) or selling high and low buy (short), usually in the short to medium term. Investors will also try to profit from buying the stock at a low price and selling it high but in the longer term. They may also seek to generate income in the form of dividends.
A popular trading method involves trading CFDs, while investors can choose between trading stocks or ETFs. When you trade derivatives, you do not own a physical asset, but when you trade stocks, you do own them.
Trader (from the English. Trader “trader”) – a trader who acts on his own initiative and seeks to profit directly from the trading process. Usually, it means trading securities (stocks, bonds, futures, options) on the stock exchange. Traders are also called traders in the foreign exchange (forex) and commodity markets (for example, “grain trader”): trading is carried out by a trader both on the exchange and in the over-the-counter markets.
A trader should not be confused with other traders who carry out transactions at the request of clients or on their behalf: broker, dealer, distributor.
Trading is the direct work of a trader: analysis of the current market situation and conclusion of trade deals.
Types of traders
- Professional traders – work in financial institutions or enterprises (banks, insurance companies, mutual funds, brokers, dealers). Usually, they have specialized education and a license for the relevant activity. They carry out transactions for money and in the interests of their companies or their clients. According to Russian law, such traders are required to have personal certificates (previously issued by the FFMS, now the Bank of Russia is engaged in this).
- Private traders, independent traders – perform operations for their own money and in their own interests (work for themselves), to access trading systems they use the services of intermediaries (brokers, dealers). Their operations usually do not require licensing. Often they do not have specialized education, they use the services of consultants, including professional traders.
There is a practice of transferring funds to a trader for management. The Civil Code of the Russian Federation in Art. 1013 does not allow trust management exclusively of monetary funds, except for cases provided for by law. As of 2018, banks, mutual funds, OFBUs, management companies, and NPFs with the appropriate licenses have the right to manage funds. At the same time, they cannot attract any loans secured by the property under management, including through the use of margin trading mechanisms.
- Day trader (day trader) – concludes counter transactions within one trading day (one trading session), closes all positions before the closing of the trading day. Often has relatively little capital. Closing positions are usually motivated by the fear of gaps (“gaps” between the closing price of the previous trading day and the opening price of a new trading day).
- Scalper, piper – makes a large number of transactions of short duration: from a few seconds to ten minutes (scalping). As a rule, the performance of an individual trade is small, but the number of trades is large (see also High-Frequency Trading).
- Positional trader (short-term) – concludes deals, assuming the closure of positions in a few days, closes all positions before periods of decreasing liquidity (holidays, summer holidays, etc.)
- Medium-term trader – makes several deals a year, close positions when weekly trends change.
- Long-term investor – open positions can be held for several years, closes positions when global trends change.
It is believed that day and position traders rely more on technical analysis of the markets, while medium and long-term investors rely more on fundamental analysis.
By purpose of transactions
- Work – ensuring the conduct of other operations or the execution of customer orders (for example, buying currency on the exchange to pay for the purchase of equipment or selling foreign currency earnings for the possibility of paying salaries). This is usually done by professional traders.
- Investor – considers the transaction as an investment.
- A speculator is a transaction for the sake of extracting a profit from the price difference.
- Arbitrageur – concludes counter transactions (one purchase, another sale) with related instruments in order to profit from the price movement of one asset relative to another. The general market movement of prices for a particular asset is leveled.
- Hedger – a deal is concluded for the sake of reducing or fixing the level of risk, for example, the risk of changes in purchase prices for agricultural products or foreign exchange quotations. It is most often used by commodity producers in the form of options or futures to enable financial planning within the production cycle.
By location of the workplace
- The trader on the floor, the trader in the pit, are usually intraday private traders who trade directly on the floor. Their workplace is located at the lowest point of the exchange floor (in the pit). Usually, they only enter into transactions on the same security. Before the computerization of trade, they were hard to see, so renting a place “on the floor” cost much less than on the steps of the stock exchange pit amphitheater. The floor trader enters into a trade in the hope that in minutes or even seconds he will be able to purchase a reimbursement contract and make a small profit from it. For example, in grain markets, floor traders often enter a trade for a difference of $ 0.0025 per bushel.
- The trader on the floor is usually professional traders representing the interests of a large number of clients or large orders. Their workplaces were located above the floor of the stock pit, they were better visible, they could better see not only other traders but also information monitors.
- A trader at the monitor conducts trading through specialized trading terminals that allow you to see the orders of other traders and place your own, read the news, view the history of quotes, perform its mathematical analysis and build various charts. No personal presence on the exchange floor is required. The difference between traders on the floor and in the hall is eliminated. Recently, the Internet has been used as a communication channel of a trading terminal with a broker or directly with an exchange. It is Internet trading that is now the most common form of trading.