For a lot of people, trade markets and the way they operate are largely unknown territory. However, trading and investing in trade markets is a viable investment strategy that can help you accumulate wealth.
Here’s a guide with three things to know so that you can understand trade markets better.
Types of Trade Markets
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Capital markets: A capital market is where individuals, companies, and governments trade financial securities such as debt and equity securities (shares). It helps them raise funds to pursue long-term investments. Some of the world’s most renowned and largest capital markets are the New York Stock Exchange, Nasdaq, Japan Exchange Group, Shanghai Stock Exchange, and Euronext.
Money markets: The money market is where very short-term and highly liquid debt investments are traded. Put more simply, it’s a type of market where money is borrowed and lent for up to just under a year. Although they offer a high degree of safety, money markets also have a relatively low investment return.
Cash or spot markets: A cash or spot market is a type of market where there’s a physical exchange of assets that are sold for contracts and money at current market prices.
Derivative markets: The derivative market trades with futures contracts or options based on the values of underlying assets such as stocks, commodities, currencies, bonds, interest rates, and market indexes. Due to their complexity, derivative markets are not the best option for inexperienced traders.
Forex markets: The forex or foreign exchange market is a global marketplace where the world’s national currencies trade against each other in pairs. It’s one of the biggest and most liquid asset markets in the world. Although anyone can participate in forex trading, you need to learn how to use the Forex trading software first and set realistic goals before you start trading.
Basic Online Trading Concepts
To set yourself up for success, you’ll first need to learn a few basic online trading concepts such as:
Market capitalization: Market capitalization, also known as market cap, is the total value of a company calculated by the total number of outstanding shares that are multiplied by the current price of one share.
Bull and bear markets: When the market is on an uptrend with prices rising or expected to rise, the market’s financial condition is called a bull market. In contrast, when the market is in a downtrend with prices falling or expected to fall, it’s known as the bear market.
Trade settlement: Trade settlement is the final stage of the transaction where the sellers receive the payment and buyer securities. Transaction dates and final settlements don’t necessarily happen on the same day. The transaction date is represented with the letter “T”. It never changes; whereas, the final settlement doesn’t necessarily occur on the same day and is most often represented as “T+2”.
Last traded price (LTP): As the name suggests, LTP is the last price for which stock was traded.
Change: Change is the difference between new and old closing prices. It’s shown as a percentage you get by multiplying the old closing price with 100. When the change is positive, the stock is written in green; whereas, when there’s a negative change with a fall in the stock price, the stock is written in red.
End-of-day orders (EOD): End-of-day orders refer to a buy or sell order that an investor gives to a broker or brokerage.
Trade volume: This is the total number of shares or contracts traded for given security.
High/Low: High/Low refers to the stock’s highest and lowest price during the trading day.
52-week high/low: 52-week high/low refers to the lowest and highest stock price in one year.
Stock symbol (ticker): The stock symbol known as ticker indicates the company’s name and its unique alphabetic name that helps identify stock easily.
Steps To Take To Start Trading
Here are the five initial steps you need to take to start trading successfully:
- Decide if you want to invest, trade, or both
- Open a brokerage account to hold your investments
- Establish a stock trading budget and risk tolerances
- Learn how to use market orders and limit orders
- Practice with virtual trading tools
- Measure your results against an appropriate benchmark index
Also, consider these 10 things you absolutely need to know when trading with stocks.
Investing in trade markets is a more affordable and more accessible way to have your money work for you than you think. If you’re still skeptical about cryptocurrencies, there are more traditional trade markets you can choose instead. That isn’t to say you should jump straight into it. Read and educate yourself about trading markets first. Take advantage of virtual trading tools where you can practice first before deciding on your first round of investments.