Maybe you heard about it on the internet, or a friend told you about it. Or would it be, on television that you heard about it? In any event, many are now familiar with trading because of its popularity and the enormous profits that come from it when practiced well enough. As a result, trading causes a lot of ink and saliva to flow. But in fact, behind the term trading, there are several nuances of distinct activities that are not always known to the general public. Also, even if we must recognize that trading is beneficial, there are many misconceptions of this activity and the resulting false promises may be even more so. It is therefore necessary to ask ourselves what trading is in reality.
What is trading?
In his first meaning, trading refers to the activity of buying and selling financial assets and products . As a result, among the assets that the trader deals with, that is, the trading one, are stocks and bonds . Shares are property securities that correspond to a fraction of the capital of a company. On the other hand, bonds are debt instruments that correspond to a share of debt issued by an enterprise or by a state.
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Thus, when assets are financial securities, they can be exchanged as such. However, when they are not financial securities, traders must then exchanged them in the form of derivatives (futures, options, swaps…) or structured products.
The different types of traders
There are mainly two types of professional traders. This is the own account trader and the flow trader .
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The own-account trader seeks capital gains through speculative transactions. If it happens that his market expectations turn out to be incorrect, he realizes losses and reduces his capital. But if it is the opposite, it realizes capital gains and increases its capital. This is the necessary condition for ensuring his remuneration.
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As for the flow trader, his activity is to search for the best available priceon the market for his customer. To do this, he must both offer the said customer a price that is competitive, while also minimizing the risksassociated with the execution of the transaction. Indeed, the job of the latter is to position itself between the market and its customers. The remuneration for his work is therefore to levy a small commission on the transactions that his clients specify.