Some people associate the word ‘trading’ with money, profit or prestige – especially those from the younger generation. For others, it means complexity or even greed. What about you? Do you know what trading is? Don’t worry if you’ve never heard of this word before. In a nutshell, trading is the buying, selling or exchange of the assets, which happens on markets.
Below, you will find a list of some of the most popular trading markets. So without further ado, let’s get to it!
Forex
To put it simply, forex trading is when you buy and sell currencies with the aim of making a profit from the difference between them. You buy currency ‘A’ against currency ’B’ because you believe that the price of A will increase against B in the future. If the currency does increase, you can close the trade and make a profit. If it doesn’t, then you will incur a loss.
If you trade forex on a website, then the transactions you’re making can be classified as Over the Counter transactions (OTC). What it means is that you don’t take physical ownership of the money you are trading – you’re just collecting the profit or the loss. Also, if you’re just getting started, you can find several websites that will compare Forex brokers for you so that you’ll know if the one you are interested in is the right choice.
The Forex market is the largest financial market in the world, with the value of the transactions exceeding $5 trillion per day. It spans the currency trading activity in various exchanges, banks and institutions all over the world. The exchange rate is one of the most important indicators of the country’s economic situation.
Stock
To understand how stock trading works, first you need to know what a stock is. In a nutshell, if you’re purchasing a company’s stock, you’re buying a small piece of that company called a share. If the value of the company increases, so does the stock’s worth – if it happens, you can sell it, making a profit.
There are two main types of stock – common and preferred. You can distinguish them by the fact that common shares carry voting rights, and preferred shares don’t. If you have voting rights, it means that you can take part in the company meetings and you have a say in the decisions that are made during those meetings.
Stocks are traded on secondary markets, where the current shareholders can make transactions with potential buyers. You have to keep in mind that if you buy a share of stock on the stock market, you’re not buying it from the company, but rather from an existing shareholder. The same goes for when you sell stock -you’re not selling it back to the company, but to another investor. The prices of shares are usually established through an auction.
Cryptocurrencies
Cryptocurrency trading is, in a sense, similar to the forex trading. It involves exchanging one currency for another, fiat money into crypto and buying and selling coins. The number of cryptocurrencies is growing – right now there are more than 1,500 in existence.
One of the things that you need to take into consideration when deciding to invest in cryptocurrency is the possibility of extreme price volatility, that can happen even to well-established currencies. Since cryptocurrency is a relatively new market, there is no historical information that you can analyze. Backing a new currency can result in either a significant gain or a big loss.
Crypto exchanges usually fall into two categories – centralized and decentralized. Centralized exchanges are online platforms on which you can buy digital assets – you trust the third party to monitor and secure assets. When it comes to the decentralized exchange, you make transactions without relying on the third party.
Commodities
Commodities are physical, natural products that are consumed by people, or used in industries like farming or mining. You can divide them into three categories :
- Metals – products such as copper, platinum, gold, silver, etc.; they are generally mined out of the ground
- Softs – also called ‘agriculturals’; products such as cotton, wheat, corn, orange juice, coffee, sugar, etc.
- Energy – products such as oil, crude oil or natural gas
Commodities are traded on organized, specialist global exchanges which help to regulate and track supply and demand, as they are the ones that drive commodities markets. Lower supply drives up demand, which means higher prices and vice versa.
Conclusion
If you want to start trading, you need to know what you want to trade. Do you want to trade currency? Or maybe commodities? The things above are just a few of those that you can trade. There are many markets to choose from. But remember that whatever you decide, it has to be a conscious and realistic decision as trading is a risky business. Keep that in mind.
