What Is Trading?
Trading these days has acquired a new meaning. While it still means the buying and selling of goods in a marketplace, the definitions of goods, and market, have taken on a new dimension. Markets now include stock exchanges as well, and commodities have now evolved from just agricultural produce to include steel, minerals, fossil fuels and their ilk.
There are two kinds of trades
- Domestic trades – where the buying and selling and exchanging of goods and commodities at wholesale or retail prices happens within a country
- International trades – where the buying and selling and exchanging of goods and commodities at wholesale or retail prices happens across borders.
Within trading, there are several branches and we will focus on a couple of them:
- Forex trading
- Commodities trading
Forex trading basically involves the buying and selling of foreign currency. This is the largest market in the world. Thanks to a thriving global community of people who are constantly engaging in international trading and international travel, there is a never-ending demand for foreign currency in every country and any given point of time.
A person living in India might need to travel to the US, and this person will need to carry USD so that there are no issues during the trip. Similarly, a person in the US might need to buy spices from India, and if the value of those goods is priced at roughly USD1000 the person will need to pay for these goods in Indian rupees in order to buy them.
For as long as this kind of supply and demand exists the foreign exchange market will continue to grow. A lot of sources peg the value of this market at roughly $2000 billion per day. That a mammoth sum of money that exchanges hands every day.
If you are a newbie to this kind of trade, you can check out online resources like x forex and many others who offer a safe and reliable platform for your money.
Commodities and goods are the same things. These commodities, like coal, for instance, can be exchanged for the same or other commodities in a marketplace. Commodities are used as the basis for the manufacturing or other products. Like when Copper is the commodity being traded, we know that copper goes into the making of utensils, wiring and also parts of computer hardware. When these commodities are traded on an exchange – like the NYSE – then they have to adhere to certain quality standards.
The interesting thing about commodities is that the manufacturer notwithstanding, the product has the same value and is traded accordingly in the market. It is only when the commodities involved are things like electronic goods that there is a variance in prices and the way in which it is sold.
There are two kinds of ways in which commodities is traded
- Futures: if a commodity is an agricultural product, for example, the person who farms this commodity can make a trade based on the time at which this commodity will get harvested and therefore present to be traded in the market. This is similar to hedging and oftentimes, the intent of futures trading is hedging since farmers know best about the specific time during which a crop will be ready to be exchanged.
- Speculations: the marketplace is not steady and linear in its daily goings on. There is quite a lot of variations and volatility based on prices, on the timeliness of the delivery of goods, on the demand for goods and so on. These variations are what speculators take advantage of and make their money off of. They have no intention of taking part in the market in a productive way except to take advantage of price variations.
Despite what many believe nearly everything traded in the markets are tangible things. Even energies, though the term sounds ephemeral, is actually the trade of crude oil and crude oil products. This market revolves around the production and delivery of crude oil and associated products. The volatility present in this market has a long-reaching impact.
Trading in this market is not for everyone and a lot of people stay away from this space purely because of the significant risks involved. It is highly likely that an investor stands to lose a large sum if they are not careful while trading in energies, so it is advised to invest wisely.