Introduction to Trading
Trading involves the dynamic process of buying and selling various financial instruments with the primary aim of generating profits. These instruments encompass a diverse range of assets, each assigned a financial value that is subject to fluctuations. Traders engage in speculation to predict the future trajectory of these values.
Diverse Financial Instruments
Trading extends beyond traditional stocks and shares to encompass an extensive array of financial marketplaces and trading items. This diversity includes but is not limited to:
- Shares and Stocks
- Forex (Foreign Exchange)
- ETFs (Exchange-Traded Funds)
- Interest Rates
- Initial Public Offerings (IPOs)
With over 17,000 tradable financial instruments available, traders have a vast landscape to explore.
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Rise of Retail Traders
The year 2021 witnessed a significant surge in the involvement of individual retail traders in the US equity trading scene. Accounting for 23% of total trading activities, these retail traders doubled their presence from 2019. Amidst the upheaval caused by the COVID-19 pandemic, they collectively invested over $1.9 billion in stocks. The pandemic-induced market turbulence led to unprecedented fluctuations in stock prices, driving the interest of retail traders.
Institutional Dominance and Specialization
While retail traders make up a noteworthy portion of trading activities, institutions continue to play a pivotal role, contributing to about 77% of all transactions. Various institutions, including governments and specialized trading departments within organizations, often focus on specific sectors or industries. Their trading strategies can pivot swiftly in response to market dynamics.
The Role of Stockbrokers
Individuals seeking to invest in the stock exchange require the services of stockbrokers. Acting as intermediaries, stockbrokers execute transactions on behalf of investors. Meanwhile, investors undertake due diligence, research, chart analysis, and trend study to make informed decisions before placing orders.
Fundamental Principle: Supply and Demand
At the core of trading lies the fundamental concept of supply and demand. When buyers outnumber sellers, demand rises, propelling prices upward. Conversely, an excess of sellers leads to reduced demand and a subsequent decrease in prices. Understanding this principle is essential for effective trading decision-making.
By comprehending the subheadings and the content under each, readers can gain a comprehensive understanding of the intricacies surrounding the world of trading.