How Trading Works
Trading is where you buy or sell a stock, currency pair, commodity, or other financial instrument, to try and make a profit from changes in its price. Read on to discover how trading works, from markets and brokers to the kinds of instruments you can trade and the ways to trade them.
Trading: How it works
There are two ways to conduct a trade on the financial markets: through an exchange, or over the counter (OTC).
Exchanges are marketplaces designed to facilitate trades of a certain type of instrument, like the London Stock Exchange, or the Chicago Mercantile Exchange. They work by matching traders who wish to buy a particular asset with traders who are looking to sell the same asset.
A trade made directly between two parties is known as an over the counter trade. Placing trades with a broker is an example of an OTC trade.
What can I trade?
With a Marketsx account you can trade stocks, forex, indices, commodities, cryptocurrencies, ETFs and bonds. You can also trade special combinations of stocks called Blends.
What you choose to trade will depend upon your personal preference and trading style. Some traders specialize in one or two asset classes, while others have more varied portfolios.
Online trading platforms
The internet has made trading faster and much more accessible. Online trading platforms, like Marketsx, give you access to markets across the globe.
Once you have created and funded your trading account, you will be able to:
- See real time price quotes and price charts
- Buy and sell instruments
- Access powerful sentiment and news tools that can help you make trading decisions
- Manage your portfolio
- Set up alerts to track the financial markets
- View your profit and loss
With online trading you can trade where and when you want; Marketsx is available via desktop and mobile web, and as a mobile app, allowing you to stay on top of the markets and manage your portfolio wherever you are.
Trading Explained: Bid and Ask Prices
When trading any type of instrument you will be presented with two prices: the bid and the ask price. The bid is the maximum price that the market is currently willing to pay for the instrument, while the ask price is the minimum price that the market is willing to sell the same instrument for.
If you want to buy the instrument, you would pay the ask price. If you wished to sell it, you would receive the bid price.
The difference between the bid and ask prices is known as the spread. How often the price changes will depend upon an asset’s liquidity.
Long positions and short positions
There are two directions that you can trade an instrument: long and short.
Going long means that you are buying the instrument in the hope that its value will increase and you can sell it on for a profit.
Going short, or shorting, is where you sell a borrowed instrument in the hope that the price will fall and you can buy it back for a lower price, keeping the difference between the two transactions as profit.
In the Marketsx platform you would use the buy button to enter a long position, and use the sell button to enter a short position.
Completing a trade is known as closing the position. It is also referred to as taking profit.
Contracts for Difference (CFDs)
Marketsx offers you the chance to buy and sell contracts for difference. A CFD is what is known as a financial derivative, because it derives its value from an underlying asset.
For instance, Apple CFDs track changes in the price of Apple stock. When Apple stock rises, so does the CFD, and when the stock price falls, the CFD does too. Trading CFDs means you don’t own the underlying asset, and it has many advantages.
One of the main benefits of trading CFDs is that you can make your capital go further with leverage. Leverage is where you put down a portion of the position’s value, rather than the entire sum, allowing you to take larger positions than you might otherwise be able to.
Learn more about trading CFDs here.