PRE-TEST
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SHORT INTRODUCTION: FINANCIAL TRADING.
Financial trading is the buying and selling of financial assets with the goal of making a profit. Traders try to buy an asset at a lower price and sell it at a higher price (or in some cases, sell first and buy back later at a lower price).
Common assets that could be traded include:
- Stocks – Shares or equities which gives ownership in companies, making one a shareholder.
- Bonds – Loans made to governments, corporations or municipalities with the benefit of receiving a specified interest over a defined period.
- Bitcoin and other cryptocurrencies – these are digital assets.
- Foreign exchange (Forex) – Trading currencies like the US dollar, euro and Japanese yen.
- Commodities – Gold, oil and other raw materials.
Though all assets are important, much of our focus will be on Forex.
Trading takes place in different forms which include:
- Day trading: Buying and selling within the same day.
- Swing trading: Holding positions for several days or weeks.
- Position trading: Holding investments for months or years based on long-term trends.
- Algorithmic trading: Using computer programs to execute trades automatically.
To make their decisions, traders often use strategies which include:
FUNDAMENTAL ANALYSIS: Studying a company’s or country’s financial health, earnings and economic conditions as well as social and political factors.
TECHNICAL ANALYSIS: Examining price charts, trends and trading volume to predict future price movements.
RISK MANAGEMENT: Limiting potential losses by utilizing tools like stop-loss orders and position sizing.
TRADING VS. INVESTING
It is important to differentiate trading from investing. Trading focuses on making profits from short-term price movements unlike investing which focuses on growing wealth over the long term by holding assets for years.
CONCLUSION
Trading can offer high returns, but it also carries significant risk of huge losses. Many new traders lose money because markets are unpredictable while success in trading requires knowledge, discipline and careful risk management.
POST-TEST: Test your understanding of basic fundamentals and concepts here:
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