By Suyeba Aslam
Your commercial awareness dose
Trading is an on-going process which requires the buying and selling of stocks, commodities, currencies and other financial instruments. Often confused with the concept of investing, there is a vast difference between the two in their means of gaining profit within the financial world. Whereas investors aim for larger returns over a longer period through the methods of buying and holding, traders would utilise all kinds of activity on-going in the market over a smaller time frame, resulting in smaller but more continual profits to be made.
The main goal during trading is to overturn the buy-and-hold investment– for example, if the annual returns were between 10 to 15 per cent, for most traders, they would opt for a 10 per cent return each month. This is because most trading proposition takes place within a very small time frame, in which trading profits are then generated to be bought at a lower cost in the aim for it to be sold at a much higher price. On the other hand, to make a profit during the time of falling markets, trading profits can also be bought at a much higher cost to be sold at a lower cost- this is called “selling short”.
Types of Trading Instruments
Trading instruments is the technical term for the many different types of markets that one can trade-in. Although they are also commonly referred to as securities, instruments can vary within aspects such as currencies, commodities, indices, stocks, exchange trade, cryptocurrency and so on.
Currency Trading: More commonly recognised as ‘Forex Trading’, currencies trading is when traders will buy and sell pairs of currency exchange rates. As exchange rates are constantly fluctuating and in fluctuating due to economic factors such as interest rates, inflation rates, terms of trade etc. there is a very high-risk factor in which one gain and lose money very quickly. As profitable as it can be, it is recommended that you only trade with money that has minimal impact if lost.
Stock Trading: Stock trading involves the process of negotiating equity securities. Corporations must buy and sell shares within various companies so that they can gain short- term profits. Stock trading can take place through part-taking individuals or on a client basis. The role of individual traders is to buy and sell via brokerage companies or agents, whilst institutional traders are working alongside investment firms. This form of trading is beneficial to the economy as it produces liquidity, producing more fluid opportunities to buy and sell at a larger scale. Similar to commodities trading, stock trading operates by supply and demand and the analysis of price patterns.
Commodities Trading: Similar to the concept of stock trading, commodity trading involves the buy-and-sell of assets such as gold, cotton, platinum and oil. Commodity trading usually operates with trading teams whom of which buy and sell the product in the aim to promote profit within the fluctuation of prices within a specific marketplace. The value of a commodity is dependent on its ‘supply and demand’. With the evolution of the internet and trading online, it means that this means of trading has become much more accessible. However, traders and investors must buy and sell at the right time with the right price to receive a generous amount of profit from the commodities market.
Indices Trading: Index trading evolves from stock trading as an index is built up by a number of stocks. The index usually includes countries which have a high performing stock rate. The aim of this method is for the trader to buy and sell an index, in which a profit will be made depending on the bid and selling price.
Cryptocurrency Trading: This form of trading works by holding transactions called blockchains. The purpose of blockchains is to hold timestamped information, which is given to a ledger, allowing verification of all blocks to be made by other stakeholders. Transactions can only take place if a small fee is paid, which allows all blockchains to be
protected. To begin crypto-trading, cryptocurrency cannot be bought from any location; it is very exclusive in which transactions must take place via online trading platforms.
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