Educations

When you trade, you’ll either buy or sell a financial instrument. The relationship between buyers and sellers is what drive market prices, so understanding it is crucial to your success. Learn what buying and selling in trading mean in this lesson.

What does buy and sell mean in trading?

Buy and sell in trading refer to the two positions you can take on the market price. When you buy an asset, you’re taking the view that it’s going to rise in value. When you sell an asset, you’re expecting it to decline.

Buy and sell can also refer to the two market prices that are displayed for any financial market. These tell you the current level at which buyers are willing to purchase an asset and sellers are willing to part with it.

You’ll see ‘buy’ and ‘sell’ used in most electronic platforms. Buy and sell prices are also commonly known as ‘bid’ and ‘ask’ prices.

Financial markets are where millions of professional and retail traders buy and sell assets. In our first City Index Academy course, we’re going to cover which markets you might want to trade, plus how you can get started.

What are financial markets?

Financial markets are places where people and companies buy and sell assets like shares, bonds, commodities, currencies and more.

There are hundreds of different financial markets around the world, facilitating the trading of thousands of assets. Some are vast and open to anyone; some are small, secretive and private. You’ll use different markets depending on what you want to trade – and how you want to trade it.

Whereas financial trading used to take place mostly face to face, today the vast majority of markets are entirely digital. Old-school trading ‘pits’ do still exist, but they’re dwarfed in volume by seamless online systems.

Your trading strategy and style will influence everything from how much time you’ll spend on the markets to how much risk you’ll take on. Learn about the differences between strategies and styles in this lesson.

Every trader will have an idea of what they want to achieve when trading on the markets. The most obvious goal is to make a profit, but some traders are just looking for excitement or enjoy the pastime.
Whatever your motivations are, you’ll need a trading strategy that works for you and a style that suits your aims. The terms strategy and style are often used interchangeably, but the main difference is this: your strategy is a very specific set of rules for how you’ll enter and exit each trade you make, while your style is more of a general guideline. With that said, let’s take a deeper look at strategies and styles.

What is a trading strategy?

A trading strategy is a set plan that is designed to help you achieve consistent, profitable returns. Your strategy will lay out rules for what and when you’ll buy and sell. Trading strategies are a core part of your overall trading plan, which will outline your broader goals. You can learn more about building a trading plan in our beginners’ course. The aim of a strategy is to find the most advantageous points to enter and exit your trades. If followed, your strategy can help reduce your risks and increase your profits, as you’ll be trading based on your set or rules rather than emotions such as fear and greed.

Day trading and scalping are the two shortest-term styles of speculating. They’re not for the faint of heart so it’s important to understand the risks and rewards of each style, which we’ll cover in this lesson.

What is day trading?

Day trading is an approach to the markets that involves opening and closing positions within a single day. The aim is to profit from smaller price movements, without incurring the costs and risk associated with holding a position open overnight.

While day trading does take up more time than the longer-term styles we’ve already covered, thanks to the improved technology available with trading apps, you don’t have to be glued to your desktop. Most day traders choose to execute, monitor and close their positions from their smartphones or tablets instead.

Price action is considered the best way of determining day trades. That is, the candlesticks that are created throughout the day: the most-watched being the previous day’s high and low. It’s believed these can inform day traders on market sentiment and market turning points – or support and resistance.

When you analyse charts, you’ll see certain formations crop up again and again. Some traders use these to enter and exit trades. So, we’re going to explore the chart patterns you should know and recognise.

What is a chart pattern?

A chart pattern is a set price action that is repeated again and again. The idea behind chart pattern analysis is that by knowing what happened after a pattern in the past, you can take an educated guess as to what might happen when it appears again.

The outcome of each chart pattern will vary depending on whether it appears in volatile or calm markets, and in bullish or bearish environments. But broadly speaking, there are three types of pattern you’ll come across:

Main features of trading is the ability to utilise leverage. But before you get started, it's worth learning exactly how leverage and margin work.

In the case of 50:1 leverage, for example, you can use $1 to control $50 of a position.

Leverage has opened markets such as forex to more retail traders who don’t want to allocate large amounts of capital to each position. However, it will magnify both the profits and the losses from any trade, so it should be used with caution.

Now that you know how to open trades with orders, let’s look at using orders as risk management tools to close active trades.

What is a limit close order?

A limit close order is an instruction to automatically close a trade at a better price than the current available price of a market. This is why they’re commonly known as ‘take-profit’ orders.

Take profits can help you to be disciplined with your trading strategy and not chase profits unnecessarily. If the price doesn’t reach the limit level, the take-profit order does not get filled and your trade will remain active. Limit close orders are commonly paired with stop losses to ensure the risk of the market moving against you is also managed.