Markets
Platforms
Accounts
Investors
Partner Programs
Institutions
Contests
loyalty
Tools
Enhance your knowledge with our free online trading courses
Financial trading means buying and selling assets like stocks, currencies, or commodities in the hopes of making a profit. It’s normal to feel unsure at first if you're just starting out, but this course will break things down clearly.
By the end, you’ll understand what financial trading is, how it works, and what to expect as you begin exploring the markets.
At its core, financial trading is the act of buying and selling financial assets, like stocks, currencies, and commodities, with the goal of making a profit.
Traders buy assets they believe will increase in value and sell those they expect will go down.
There are different markets where trading happens, each dealing with specific types of assets.
Here are the major ones:
This is where shares of publicly traded companies are bought and sold. When you buy a stock, you’re purchasing a small part of a company, known as a share. If the company does well, the value of your shares goes up, allowing you to sell for a profit.
Example: If you buy 10 shares of a company at $50 each and the price rises to $60 per share, you’ve made a $100 profit!
The forex market is where currencies are traded. It’s the largest financial market in the world, with over $6 trillion traded daily.
Unlike the stock market, forex operates 24 hours a day, five days a week. Traders make money by speculating on how currency exchange rates will change.
Example: If you think the Euro (EUR) will strengthen against the US Dollar (USD), you’d buy EUR/USD. If the exchange rate moves in your favor, you profit!
Commodities are raw materials like oil, gold, coffee, and wheat. These are traded in two ways:
Spot markets: where you buy and sell immediately.
Futures markets: where you agree to trade at a set price in the future.
Example: A gold trader might buy gold futures, betting that the price will go up. If it does, they sell for a profit.
Now that you’re familiar with the different markets, let’s look at how traders generate profits.
This is when you buy an asset, expecting its price to go up. If you sell it later at a higher price, you make a profit.
Let’s look at an example to understand the concept of buying better. Suppose you're interested in the stock market and decide to buy shares of a company called "Company X."
You purchase 10 shares at $100 each, investing a total of $1,000.
If Company X performs well and its stock price rises to $120 per share, your investment is now worth $1,200. Selling your shares at this higher price would net you a $200 profit.
Short selling is the opposite of buying, you sell first and buy later at a lower price. This lets traders profit when prices fall.
For example, you believe that Company X's stock is going to decrease in value. You borrow 10 shares from your broker and sell them at the current price of $100 each.
Later, as you predicted, the stock price falls to $80 per share. You then buy back the 10 shares at this lower price for $800 and return them to your broker. In this case, you've made a $200 profit (selling at $1,000 and buying back at $800).
To trade, you need a trading platform, which is software provided by a broker. This platform lets you:
Buy and sell assets.
View real-time market prices.
Analyze trends and make informed decisions.
When placing a trade, you can choose between three main order types:
Market Order: This buys or sells an asset immediately at the best available price. It’s fast but doesn’t guarantee a specific price.
Limit Order: This lets you set a specific price at which you want to buy or sell. The order will only be executed if the market reaches your price, giving you more control but possibly taking longer to complete.
Stop Order: Triggers a buy or sell order only when the price reaches a certain level. It’s often used to limit losses or lock in profits.
Stop-Loss Order: Automatically sells an asset if the price drops to a certain level, preventing bigger losses.
Stop-Buy Order: Triggers a buy order when the price rises to a certain level, often used to catch upward trends.
A broker is a company that provides access to financial markets. They execute your trades and offer tools, research, and support to help you trade effectively.
When choosing a broker, consider:
Fees and commissions
Platform features
Customer support
Regulation and security
This will be explained further in Lesson 7.
Not all traders approach the market the same way. Some prefer quick trades within minutes, while others hold their positions for months or even years.
The type of trader you become depends on your personality, risk tolerance, and time commitment.
Here are the main types of traders:
Trades last: A few minutes to a few hours (never overnight).
Goal: Take advantage of small price movements within a single trading day.
Who it’s for: Those who enjoy fast decision-making and constant market monitoring.
Example: A day trader buys a stock at $50 in the morning and sells it at $52 in the afternoon, making a quick profit.
Risk: Requires full attention, quick reactions, and strong risk management.
Trades last: A few days to a few weeks.
Goal: Capture short- to medium-term trends by buying at lows and selling at highs.
Who it’s for: Traders who want to profit from trends but don’t want to sit at the screen all day.
Example: A swing trader notices that gold prices have been rising and buys in at $1,900 per ounce. A week later, the price reaches $1,950, and they sell for a profit.
Risk: Overnight price gaps can occur, leading to unexpected losses.
Trades last: Seconds to minutes.
Goal: Make many small profits from tiny price movements throughout the day.
Who it’s for: Those who can handle high-speed trading and quick decision-making.
Example: A scalper buys a stock at $100.10 and sells it seconds later at $100.20, repeating this process multiple times to accumulate profits.
Risk: High transaction costs and the need for ultra-fast execution.
Trades last: Months to years.
Goal: Hold assets for the long haul, based on fundamental analysis and economic trends.
Who it’s for: Investors who prefer slow, steady gains with minimal daily involvement.
Example: A position trader buys shares of a technology company, believing its innovations will drive stock prices higher in the next five years.
Risk: Requires patience, and long-term trends can be unpredictable.
Your trading style depends on:
Time commitment: Do you want to trade daily or occasionally?
Risk tolerance: Can you handle quick price fluctuations?
Personality: Are you patient, or do you thrive on fast decision-making?
Tip: If you’re unsure, start with a demo account and experiment with different trading styles to see what suits you best!
It’s essential to understand both the rewards and the risks of financial trading.
Benefits: Trading can offer substantial financial returns, the ability to trade rising and falling markets, and the flexibility to trade anytime and anywhere.
Risks: The risks include potential financial losses due to market volatility, especially in leveraged trading (more on that in next lessons). Emotional decision-making and lack of knowledge can also lead to bad decisions.
Choose a Broker: Find a reliable, beginner-friendly broker.
Use a Demo Account: Practice trading risk-free with virtual money.
Make a Trading Plan: Set clear goals, risk limits, and strategies.
Start Small: Trade with small amounts until you gain confidence.
Financial trading is buying and selling assets to make a profit.
The major markets are stocks, forex, and commodities.
Traders can buy (long) or sell (short) depending on their market expectations.
A broker and trading platform help you execute trades.
There are different types of traders, including day traders, swing traders, scalpers, and position traders.
Trading offers opportunities but also carries risks.
With the fundamentals covered, we can now move on to the next lesson: Why Trade?
Our easy-to-use glossary breaks down complex trading terms into plain English. Learn the key terms every trader needs to know.
Explore our latest blog posts for trading tips, market insights,and real-world strategies. The XS blog keeps you informed, inspired, and ready to trade.
