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Financial Trading: Getting Started

Financial Trading is simply buying or selling of financial assets with the aim to make profits from the rise or fall in assets price or value.

 

Financial trading is done electronically using network of exchanges, banks, hedge funds, liquidity pools to display price movement and position contracts highlighting values.

The Various Financial Markets To Trade On

The main and most popular are;

  • Forex Market
  • Stock Market
  • Commodities Market
  • Metal Market
  • Index Market

FOREX MARKET

The Forex Market involves trading currency pairs against each other.

In the Forex market, one currency is traded against the other and profit is made from the rise or fall in exchange rates.

There are eight (8) major currency traded against each other, and they are;

Major Currencies Traded Against Each Other

  1. The United States Dollar, which is represented as USD.
  2. The Great British Pound, which is represented as GBP.
  3. Euro, which is represented as EUR.
  4. New Zealand Dollar, which is represented as NZD.
  5. Canadian Dollar, is represented as CAD.
  6. The Japanese Yen, is represented as JPY.
  7. Swiss Franc, which is represented as CHF.
  8. Australian Dollar, which is represented as AUD

In the FOREX Market, these currencies are traded against each other and quoted as; GBPUSD, EURUSD, USDCAD, NZDUSD, CADJPY, EURJPY, EURCHF, GBPJPY, etc.

Forex Market Transaction Volume

The FOREX Market (or FX Market) is the most liquid financial market across the board with a daily transaction volume of over $5 Trillion.

It is important to note that the volatility of this market is determined by the country’s performance which is measured by macroeconomic reports such as the Employment rate, Interest rate, GDP, Election, Natural disasters, etc.

Big Banks help drive the FX markets to key level prices.

Other participants in the FX markets are the Hedge Funds, Multinational Corporations and retail traders.

STOCK MARKET

This market involves trading stock prices. In this market, profit is made from the rise or fall in company’s stock price.

These stock prices are on the electronic communication network through the Stock Exchange which the company is listed on.

There are various companies whose prices are listed on various stock exchanges some of them are; Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), Amazon (AMZN), etc.

The volatility of this market is determined by the company’s performance which is measured by various reports, filings, values, etc..

Stock trading is actually the oldest form of trading.

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COMMODITY MARKET

This market involves trading resources like the West Texas Intermediate (WTI Crude), Brent Oil. Profits are made from the rise or fall in these prices.

The volatility of this market is determined by supply and demand of each commodity on a world scale.

METAL MARKET

The metal market involves trading precious metals like Gold, Silver, Palladium, Platinum, against currencies like the US Dollar, Euro, etc.

In these markets, you could get quotes like, XAUUSD (Gold/USD), XAGUSD (Silver/USD), XAUGBP (Gold/GBP), etc.

INDEX MARKET

This market involves trading a bundle of assets grouped together to become one.

A typical and very popular index is the NASDAQ 100; This is an index that lists the top 100 performing stocks listed on the NASDAQ stock exchange in one tradeable asset.

Other examples of financial indexes are; FTSE100, S&P500, DOW JONES INDUSTRIALS (US30), Nikkei 225, etc.

Basic Financial Trading Terms

The understanding of these terms will facilitate your knowledge in the financial markets.

  • Bid Price: This is the best available price at which you will sell from the market
  • Ask Price: This is the best available price at which you will buy from the market.
  • Spread: The difference between the bid and ask price.
  • Leverage: This is boost offered by your broker. Take it as your equity multiplier. Some brokers offer 1:1000, 1:500, 1:200, 1:100, 1:1. This means that what ever equity you have in your trading account, it will be multiplied by the given leverage in units.
  • Lot: This is the number of contracts you will buy or sell. In financial trading, it is also known as position size. 1 standard Lot in Forex is 100,000 units of the base currency. 1 mini Lot in Forex is 10,000 units of the base currency. 1 micro Lot in Forex is 1,000 units of the base currency.
  • Broker: These are the Companies that offers tradeable financial instruments to retail traders.
  • Equity: Your trading amount
  • Pip: the unit of measurement to express change in value between currency pairs. A pip is usually the last decimal place of a price quote. Most pairs go out to 4 decimal places, but there are some exceptions like Japanese yen pairs (they go out to two decimal places). For example, for EUR/USD, it is 0.0001, and for USD/JPY, it is 0.01.
  • Support: This is an area where price is failing to break to the downside. When a support area is broken and retested, it becomes resistance
  • Resistance: This is an area where price is failing to break to the upside. When a support area is broken and retested, it becomes support.

Understanding Trends in Financial Trading

This is the direction of the market. There are three trend types in the financial markets. They are;

  • Bullish: An asset is termed bullish when it makes series of higher highs and higher lows. This simply means the instrument is pushing to the upside.
  • Bearish: An asset is termed bearish when it makes series of lower highs and lower lows. This means the instrument is pushing to the downside.
  • Range: A ranging market is one which is failing to break to the upside nor downside.

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