Trading is an activity that in recent years has become very popular but not everyone is clear about the concept. Do you know what trading is? Do you know what trading is? If you are not sure, do not worry: in this article we will explain in detail what trading is, what we need to be a trader and we will try to answer the question of whether you can make a living from trading. If you are interested in these topics, keep reading!
What is trading? Trading definition
The word trading is an anglicism that in Spanish literally means “commerce” or “transaction”. However, when we ask ourselves what trading is, this definition falls short as it is not such a simple activity. Trading involves much more than a simple transaction.
When we speak of trading we refer to the activity of speculating in the financial markets with the aim of achieving profits or profits. How? With the purchase or sale of financial assets of different types, from shares, through currencies, raw materials, to cryptocurrencies, among others. The more liquid the asset, the better. In short, it is a type of investment to obtain returns but at the same time implies significant risks that must be managed in the best way.
Both in trading and in traditional investment we expose our savings in the financial markets, but we must clarify some differences between these two activities:
⚠️ The investment generally refers to the long term, to buy an asset, usually shares, to hold it for a long period of time so that we achieve a periodic income, in the form of a dividend or annual yield.
⚠️ Trading, on the contrary, is more speculative and generally refers to the short / medium term. It looks for small returns by opening and closing several positions, so it requires greater attention to be aware of the entry and exit opportunities that arise, either within the same day or on several different days.
⚠️ Trading has a greater variety of financial assets, including so-called derivative products, instruments that allow you to take advantage of both bull and bear markets and that, in many cases, allow you to use leverage. Of course, all this increases the risk of losing our money so we must use them carefully.
What is trading? – What is a trader?
Once we have a more or less clear idea of what trading is, let’s see what a trader is. A trader buys and sells financial assets (stocks, bonds, currencies, options, etc.) while monitoring market price movements in real time in order to generate profits from a certain capital.
The trader can be self-employed, using their own money, or salaried, using the money of others. He may specialize in certain assets or markets and certain styles of trading: binary options trader, commodities trader, high frequency or scalper trader, Forex trader, oil trader, or day trader.
⏩ Since the rise of the Internet, independent traders who trade with their own money at home are more and more numerous, since access to the markets is now much easier.
⏩ The companies that employ salaried traders are mostly financial institutions but can also be private listed companies whose main business is another.
How much does an independent trader earn?
Within the question what is trading there is also another question and that is how much a trader can earn. Calculating what an autonomous trader earns is almost impossible, taking into account that each one will have a different capital and a different style. For example, a young trader is very likely to earn less than an experienced investment and finance trader.
In the same way, someone who is dedicated to trading as a main activity is very likely to be able to generate more profit than a trader who uses only a few hours a day.
What is trading? – What do we need to practice trading?
Thanks to new technologies, practicing trading is now available to anyone, from the living room and without having to have obtained university degrees. Of course, we cannot just jump into trading because it carries risks, we need a series of tools:
- A computer, a tablet or a smartphone
- Internet connection
- A broker
- As you can see, the first two tools are practically already installed in every house, they are part of everyday life. It is very likely that you already have an Internet connection and that you have a computer, landline or laptop, a tablet or a simple mobile phone.
The other three tools are interrelated: when you hire a broker, it provides you with the trading account and the trading platform. There are different types of accounts depending on your investor profile, and it is simply similar to a bank account.
It is the intermediary that allows you to place your orders on the market. The first step in answering the question of what is trading and how to trade is to choose a reliable and regulated broker, such as Admiral Markets UK Ltd, which is authorized and regulated by the Financial Conduct Authority (FCA).
As for the trading platform, it is nothing other than the software that allows you to open and close positions, analyze the market with charts, use indicators for your strategies. The MetaTrader platform is the most popular and used by traders: free, robust, intuitive and easy to use.
To these tools we must add another, if possible, even more important: training in trading. It is not convenient to launch into the world of trading without being very clear about some basic concepts such as pip (percentage point), volatility or leverage. To be able to understand these tools well and use them correctly to get the most out of them, it is best to take trading courses. At the end of the day, it is not about having a stroke of luck, trading is complex in nature and navigating the financial markets requires training, dedication and discipline.