DADA
What Is Trading?
Trading is the process of buying and selling financial instruments with the goal of benefiting from changes in price. Before learning strategies, charts or indicators, it is important to understand what trading actually means and how markets work.
What Does Trading Mean?
At its simplest, trading means exchanging one asset for another based on an expectation that its price may change.
A trader studies a market, decides whether they believe the price may rise or fall, manages the amount of risk they are willing to take, and then opens a position.
How Does a Trade Work?
Imagine an asset is trading at a price of $100.
A trader believes the price may rise and decides to buy. If the market later rises to $110, the difference represents a potential gain. If the price falls instead, the trader may experience a loss.
Entry Price: $100
Exit Price: $110
Price Difference: +$10
Simplified educational example only. Fees, spreads, leverage and other trading costs are not included.Markets You Can Trade
Forex
Foreign exchange trading involves currency pairs such as EUR/USD and GBP/USD.
Cryptocurrency
Digital assets such as Bitcoin and Ethereum trade on cryptocurrency markets.
Stocks
Shares represent ownership in publicly traded companies.
Commodities
Commodity markets can include assets such as gold, silver and energy products.
Buying and Selling
Traders generally take one of two market views:
A trader expects the market price to increase.
A trader expects the market price to decrease.
The ability to trade falling markets depends on the financial instrument and platform being used.
Important Beginner Terms
The price where a trader opens a position.
The point where a trader closes a position.
A positive financial result from a trade.
A negative financial result from a trade.
The degree to which a market’s price moves over time.
The possibility that a trade may result in financial loss.
Trading Always Involves Risk
No trading strategy guarantees a profit. Markets can move quickly, and losses are a normal possibility when participating in financial markets.
A responsible trader focuses on understanding risk before focusing on potential returns.
Key Takeaways
- Trading involves buying and selling financial instruments.
- Prices can move both higher and lower.
- Trading decisions involve uncertainty.
- Different markets include forex, crypto, stocks and commodities.
- Risk management is an essential part of trading.
DADA Trading Academy materials are provided for general educational purposes only and do not constitute personalized financial, investment or trading advice. Trading involves risk and losses are possible.