What is trading?
Participating in Changes in Market Prices
Trading involves buying and selling financial instruments with the aim of participating in changes in their market price. Financial markets bring together buyers and sellers, allowing instruments such as currencies, stocks, commodities and indices to be traded.
Market prices continuously change as participants respond to new information, economic conditions, supply and demand, company developments and changing expectations. Different markets operate in different ways, but many fundamental concepts remain similar.
Understanding financial markets
Different Markets, Different Sources of Price Movement
Forex
Currencies trade in pairs such as EUR/USD, expressing one currency's value relative to another.
Stocks
Company-share prices respond to performance, earnings, economic conditions and expectations.
Indices
An index tracks a selected group of stocks and provides a broader view of a market or economy.
Commodities
Resources such as crude oil are influenced by global production, consumption, supply and demand.
Metals
Gold and silver can react to the US dollar, rate expectations, industrial demand and market conditions.
Crypto CFDs
Follow selected digital-asset prices without directly owning the underlying cryptocurrency.
How market prices move
Supply, Demand and New Information
When buying interest becomes stronger relative to available supply, upward price pressure may develop. When selling becomes stronger relative to demand, downward pressure may occur. Economic data, interest rates, company announcements, geopolitics, sentiment and future expectations can affect this relationship simultaneously.
Bid, Ask and Spread
The bid is generally the price at which a position can be sold; the ask is generally the price at which it can be bought. Their difference is the spread.
Spread
Spread = Ask Price − Bid PriceBid 1.0850 and ask 1.0852 produce a 0.0002 spread, commonly 2 pips for many Forex pairs.
What Is a Pip?
EUR/USD: 1.0850 → 1.0851 = 1 pipFor many currency pairs, a pip describes movement in the fourth decimal place. Yen pairs often use another convention.
Spreads can vary with the instrument, account type, liquidity and prevailing market conditions.
Positions and order types
Going Long, Going Short and Structuring an Order
Going Long
A long position is opened when a trader expects price to increase. A rise may be favourable; a fall may produce a loss.
Going Short
A short position is opened when a trader expects price to decrease. A fall may be favourable; a rise may produce a loss.
Market direction is uncertain, and positions can result in losses when prices move against them.
Position Size
Position size is the amount of market exposure associated with a trade. It may be expressed in lots, units or contracts. Larger positions create greater exposure to the same market movement, making position size central to both trade calculations and risk.
Trading Orders
Market Order
Buy or sell at the best available price. The final execution price can differ in fast markets.
Limit Order
Buy or sell when a specified price or better becomes available.
Stop Order
Becomes active when the market reaches a specified price level.
Stop Loss
Designed to close at a specified adverse level, although the exact price is not guaranteed.
Take Profit
Designed to close when a specified favourable price level is reached.
Understanding profit and loss
Opening Price, Closing Price, Direction and Size
The result of a position depends on the difference between its opening and closing prices, its direction and size.
Long Position
P/L = (Closing Price − Opening Price) × Position SizeShort Position
P/L = (Opening Price − Closing Price) × Position SizeActual results can also be affected by spreads, commissions, overnight financing, currency conversion and other applicable costs. Examples are provided for educational purposes only.
Market conditions
Volatility and Liquidity
Market Volatility
Volatility describes the degree of price movement over a period. It can increase around economic announcements, company news, geopolitical events or uncertainty, producing larger moves in either direction and increasing risk.
Market Liquidity
Liquidity describes how easily an instrument can generally be bought or sold without significantly affecting its price. It can influence spreads and execution and can change during the day or around major events.
Trading sessions
Markets Operate Across Regions and Time Zones
The Forex market moves through major sessions associated with Sydney, Tokyo, London and New York. Periods where major sessions overlap can experience increased activity. Stocks, commodities and other markets follow their own exchange hours and schedules.
What influences financial markets?
Six Common Drivers of Market Movement
Economic Data
Inflation, employment, growth and other indicators can influence expectations.
Interest Rates
Central-bank decisions and future-rate expectations affect many markets.
Company Developments
Earnings, announcements and outlook changes influence stocks and indices.
Supply and Demand
Production, consumption and availability are especially important for commodities.
Geopolitical Events
Conflict, trade developments and policy changes can alter conditions.
Market Sentiment
Collective expectations and participant behaviour can influence short-term movement.
Trading Basics at a Glance
Educational information
Financial Markets Involve Risk
CFD First educational content is general information and does not constitute investment advice. Leveraged CFD trading can result in losses.