Everyone is familiar with the term “trading”. Most of us have traded in our daily lives, although we may not know we have. Basically, all you buy in the store is exchange money for the things you want.
Traditionally, you'd learn how to trade the financial markets online – but what exactly is online trading?
Trading principles
When we talk about trading in financial markets, it is the same principle. Think about someone who trades stocks. What they actually do is buy stock (or a small part) of a company. If the value of the stock increases, then they make money by reselling it at a higher price. This is a trade. You buy something at one price and sell it again at another — hopefully at a higher price, making a profit and vice versa.
But why did the stock value go up? The answer is simple: value changes with supply and demand – the more demand for something, the more people are willing to pay for it.
We can explain this by using a simple everyday example of buying food. Say you are at the market and there are only ten apples left in a stall.
If you are the only person and you only want a few apples, then the market stall owner will most likely sell them to you for a reasonable price.
Now let's say fifteen people enter the market and they all want apples. To ensure that they will actually get it before others do, they are willing to pay more for it. Therefore, the owner of the market stall can increase the price, because he knows that the demand for apples is greater than the supply.
Once an apple reaches a price that customers think is too high, they will stop buying it. When the market stall owner realizes that he is not selling his apples anymore because they are too expensive, he will stop raising the price and may return to a level where customers will start buying apples again.
Say suddenly another market stall owner comes to the market and has more apples to sell.
It makes sense that the owner of the second market stall might want to sell apples at a lower price than the owner of the first stall to attract customers. It also makes sense that customers might want to buy at a lower price.
Seeing this, the first stall owner would most likely lower the price. Therefore, a sudden increase in supply has lowered the price of apples.
the price level at which market stall owners and customers agree on the price and number of apples sold.
Application to financial markets
If a company posts some good results and pays very good dividends, then more people will want to buy shares of the company. This increase in demand will cause the share price to increase.
What is online trading?
For a long time financial trading was purely electronic between banks and financial institutions. This means that trading.
in financial markets is closed to anyone outside of these institutions. With the development of high-speed Internet, anyone who wants to engage in trading can do so online.
Almost anything can be traded online: stocks, currencies, commodities, physical goods and many other things – at this stage, you don't have to worry about any of this. For now, keep in mind that if something can be traded, it will be traded. Of all these markets, the forex market is the largest. Nearly $4 trillion worth of currency is traded every day – more than any stock exchange in the world.