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The Basics of Trading -Financial World - You want it so badly! But how?

Updated: Aug 3, 2022

The basics for any ordinary mortal human being: traders often get lost and don't even know where to start. All of us, in one way or another, do or have made transactions. It has everything to do with the Law of Supply and Demand. We all have to negotiate and when we close deal, the transaction is made. Know what is an asset and a liability. It is the minimum!

Behind our offer must be a buyer. So if we know how to trade based on market information, we are more likely to close a good deal. This is basic.

What then are the main objectives of financial markets?

. Capital increase

. Risk Transfer

. Price Transparency

. Capital Transfer

. International Transactions

You then need to understand the basics of how the Exchange market works, such as Bid (the best bid or sell offer) and Ask (the best Ask or offer to buy) of assets, so you must always have a buyer and a seller for a transaction.

If you place a market order on your asset, the purchase price will match the request or purchase (Ask) and the sale price to the offer(Bid). The difference between offer and sale is the Spread.

Bid and request the evolution of an asset based on supply and demand. Ask and Bid evolve as a result of this evolution.

In case of high demand, asset sellers seek to sell more expensive. Therefore, they increase their selling price by increasing the supply. Buyers are forced to align and the request goes up equally.

If demand is weak, buyers seek to buy cheaper. Consequently, they lower their purchase price, thereby lowering the order. Buyers are forced to align and supply decreases equally.

The bid gap (Ask and Bid) may vary over time, but the more important the liquidity in the security, the smaller the gap.

Asset volatility also has a strong impact on Ask's evolution. The more volatile an asset is, the faster the bidding and soliciting, as they evolve, and the greater the gap between the two.

Trying to explain this in a simple way: the spread size is expressed in points, except for Forex, where we speak in terms of “Pips” - the so-called Basic Point which represents the minimum unit of variation of a type. The English-speaking term for a base point is “priceinterestpoint” (or pip) which corresponds to a 0.01% change... You have to study this variation.

But back to the spread:

See the example of an asset whose price is: 99.30 / 99.35.

. 99.30 is the price at which the asset may sell

. 99.35 is the price at which the asset can be purchased

To calculate the spread, simply subtract the buyer type from the seller type. In this case, the spread is 0.05 points (99.35-99.30).

When you open a position in a financial instrument, you are generally losing the spread value. Returning to the example, the price must rise 0.05 points for its operation to be zero. All spread must be paid at opening position.

Volatility and liquidity influence the spread, ie the more volatile an asset is, the higher the spread; Similarly, the more liquid an asset is, the weaker the spread.

This is why the assets do not have the same spread. It is always evolving and constantly depends on these factors. All assets have a spread.

Spreading allows certain brokers to earn their remuneration / retribution, especially in over-the-counter markets such as Forex, commodities or derivatives, but this is already a matter for capital market specialists, which should always seek advice.

But there is one thing that is Market Trend. knowing how to spot a trend is a fundamental element of technical analysis that is often overlooked by novice traders. Identifying the trend, however, not only reduces the number of losing trades, but also maximizes profits on winning trades. Trend is an indispensable aid in decision making because it provides the main direction of the asset. Therefore, it is a study of the past (through price history) that allows us to predict the most likely price direction of an asset in the future.

Identifying the trend allows you to understand investor psychology and leverage it for profit. In the market. Experts often say that "The trend is your friend".

There would be much more to explain but in this case, remembering that we talked about the basics, I just want to remind you and leave you with the following message:

If you have money to invest and don't know where to start, think about it all and inform yourself. Getting into the financial market, investing in assets is great but you have to know the terrain where you step. Being intelligent is not enough. You have to be Smart. Educate yourself financially! May you be very successful!

It's for the tough ones.

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