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Trading fundamentals: a basic guide for beginners
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3 minutes of reading
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August 14, 2024
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Introduction to trading
Trading involves buying and selling financial instruments such as stocks, bonds, commodities, or currencies with the aim of making a profit. Unlike long-term investing, trading focuses on short-term market movements to capture potential gains. Whether you trade stocks, currencies, or cryptocurrencies, understanding the basics is crucial for success.
1. Market fundamentals
Types of markets: there are several financial markets where commercial transactions take place, including the stock market, the forex market, the commodities market, and the cryptocurrency market.
Trading instruments: traders can trade various instruments such as stocks (equity trading), currencies (forex trading), commodities (like gold or oil), and cryptocurrencies (like Bitcoin or Ethereum).
2. Understanding price movements
Supply and demand: Prices in the market are primarily governed by supply and demand. When demand exceeds supply, prices rise, and when supply exceeds demand, prices fall.
Market sentiment: The collective mood or sentiment of market participants can also influence prices. Positive sentiment can drive prices up, while negative sentiment can lead to declines.
3. Key concepts in trading
Bid and ask price: The bid price is what buyers are willing to pay for an asset, while the ask price is what sellers are asking. The difference between the bid price and the ask price is known as the spread.
Market orders vs. Limit orders: A market order is executed immediately at the current market price, while a limit order