The Simple Terms
The Simple Terms
Financial trading is nothing but the buying and sale of various financial instruments to make profits from the trading. The various financial trading instruments are in the form of derivatives, foreign exchange, or shares, including forex. The good part with financial trading is you can do it on your own free from the stress of business dealing, or you may choose to do it full time as a profession, at least in consideration of your income earning.
Forex trading instruments include foreign exchange and stock contracts. Foreign exchange is the market trading for the trade of one type of currency against another. Stock contracts are contracts for the exchange of shares between two parties. These contracts allow one party to purchase goods from another at a fixed price and the other party to sell goods at a fixed price.
The concept of trading instruments is very simple. It is all about buying or selling financial instruments based on the underlying assets and profits from those assets. To do this you have to buy the derivative and its corresponding underlying assets and then sell these contracts to make a profit. It is as simple as that!
For example: A French investor wants to invest in Spain. To purchase Spanish stocks he has to pay the bank via a credit transaction. He has to pay interest and other charges. In order to protect himself from the risk associated with the investment, he purchases an option that will allow him to speculate on the exchange rate between Spain and France.
Traders also use financial instruments in order to trade between different markets. Let’s say that an American investor wants to invest in German companies. He will trade with different dealers based on the exchange rate between Germany and the USA. He does not want to trade solely on the basis of the trading rates. He wants to take other factors into consideration like the economic outlook in Germany or whether the Thyssenkrupp Access Bank is going to stay in business.
If you start day trading the various financial markets then you are able to experience the diversity of this global market. You have the opportunity to trade with a diverse range of companies, products and sectors. You are also exposed to a diverse range of risks and opportunities. This exposure to risks and opportunities makes day trading a very attractive option.
Another popular trading instrument is the futures and options contract for crude oil. You can trade for base pair oil prices, spot contract for heating oil and even for futures oil prices. It all depends on where you want to be. There is no physical commodity that cannot be traded. Even wheat can be traded electronically in an online futures trading account.
Day trading instruments also include commodity contracts like agricultural products like livestock, meat, fruits, vegetables, dairy products etc. You can trade with the CFD market or the futures and options market for agricultural commodities. If you like talking to people, there are many organisations that provide consultations through slideshows. You can also make use of the internet to find out more about trading instruments.
You will always want to buy something when it is cheap and will increase in value in a given time frame. Of course this implies that you will have to buy at a low price and sell when the price goes up. It sounds easy and it really is, but when you look at what you need to do in order to successfully trade the financial instrument, you will realize that it is not that simple. You must know how to interpret the financial instrument. If you are trying to predict the direction of the market, then you are taking a gamble. It is very difficult to predict the market and therefore impossible to make money in a gambling situation.
If you are trading an equity market, then you will probably have to deal with various corporate entities. However, before you enter into a deal with any one entity, you need to study the asset very closely. You should not just look at the financial numbers and think that you understand it. You should understand the economic theory behind the instrument and the risks associated with it. Every investor has a different way of looking at things and there are many different situations that require different types of analysis. Therefore you need to be very clear on the simple terms and methods of analysis before you start dealing with the assets.
One example of a trading tool that is used extensively in the futures markets is the futures contract. Futures contracts are contracts that give the buyer an opportunity to purchase or sell a specific asset, at a pre-determined price, within a specified period of time. If you want to buy something now and sell it later, the best choice is to buy a futures contract, because you are able to set the price and when you want to sell it, you can. However, it is important that you understand the risks that are associated with the futures markets and ensure that you are prepared for them.