What is Financial Trading?
There are many terms and jargons floating about in the world of financial trading. In this course we will explore and learn more about them!
So what exactly is Financial Trading?
Financial trading describes the buying and selling of assets in financial markets. You can trade anything from stocks, commodities, indices, foreign exchange, and more.
People and companies often trade financial instruments because they need the assets for themselves or their business. For example, you may be travelling from Europe to the USA and want to convert euros to dollars. To do this you would participate in the forex market.
However, most of the time financial traders don’t need the assets at all. They are speculating the financial markets looking to make a profit from movements in the price, for example by buying low, then selling high.
What is a Financial Instrument?
Financial instruments are assets that can be traded, or they can also be seen as packages of capital that may be traded. Most types of financial instruments provide efficient flow and transfer of capital all throughout the world’s investors.
Here are some examples of popular financial instruments that are traded today:
Stocks: shares in companies that change in value according to the company’s performance, financial prospects, and public opinion.
Cryptocurrencies: a digital currency in which transactions are verified and records maintained by a decentralised system, rather than by a centralised authority. Crypto includes BitCoin, Ethereum, etc.
Indices: baskets of securities such as stocks and bonds that measure the performance of a specific market.
Forex: foreign currencies that are traded in pairs, such as the EUR/GBP or USD/JPY.
Commodities: ‘hard’ and ‘soft’ commodities, including precious metals, energy resources, agricultural products, and more.
What are Financial Markets?
Financial markets refer broadly to any marketplace where the trading of securities occurs, including the stock market, bond market, forex market, and derivatives market, among others. Examples include; New York Stock Exchange (NYSE), Chicago Merchantile Exchange (CME).
Types of Financial Markets
Most people think about the stock market when talking about financial markets. There are numerous financial instruments that can be traded, these instruments are classified into their respective markets based on varied parameters.
Stocks
This is the hub for companies looking forward to raising their capital. First, they register their shares and issue them to interested traders via an initial public offering (IPO) in the secondary market. They list the shares or stocks on stock exchanges, including NASDAQ, New York Stock Exchange (NYSE), or OTC, a non-physical trade counter.
Commodities
A commodity market deals with commodity markets, including assets like gold, oil, wheat, rice, etc. There are around 50 major commodity markets all over the world.
Derivatives
The derivatives market deals with derivatives, which derive their value from an underlying asset. Individuals and firms can trade in futures, options, forward contracts, and swaps here. Such trades can be entered either via over-the-counter or in exchange-traded derivatives to manage the financial risk.
Forex
The foreign exchange (Forex) market helps conduct currency trade. These markets are operated through financial institutions and are used to determine foreign exchange prices for every money.
Key Takeaways:
Financial Trading vs Financial Instruments vs Financial Markets
Financial Trading is the action of buying and/or selling.
Financial Instruments are the assets that can be traded.
Financial Markets is the marketplace where trading occurs.
* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.