Financial trading explained
Financial trading is no different to any other form of trading: it is about buying and selling assets in the hope of making a profit. Here we discuss the key concepts, participants and markets involved in financial trading.
What is financial trading?
Financial trading is the buying and selling of financial assets. It is carried out in one of two ways: via an exchange or over the counter (OTC). An exchange is a highly-organised marketplace where you can trade a specific type of instrument. For example, you can trade US shares on the New York Stock Exchange (NYSE). When you trade over the counter, the trade is made directly between two parties. For example, buying a CFD contract from a trading broker such as IG.
What is traded in financial trading?
Financial instruments such as shares, forex or bonds, or derivatives such as CFDs, futures or options can be traded. Whatever the instrument being traded, the intended outcome is always the same: to make a profit. If you buy an instrument at a low price and sell it at a higher price, you make a profit. If you sell an instrument for less than you bought it, you’ll make a loss.
Who trades?
In financial markets, millions of companies, individuals, institutions and even governments are all trading at the same time. But what is a trader? A trader is defined as a person who buys and sells financial instruments with the aim of making a profit.
Some traders stick to a particular instrument or asset class, while others have more diverse portfolios. Some do lots of research before placing a trade, while others read charts and watch out for trends. But trades all have one thing in common – they all carry risk. Risk is a key concept to all types of financial trading. No matter what instrument is being traded, who’s trading it or where the trade takes place, balancing potential profit against risk is key to a successful trading strategy.
Which markets can be traded?
There are thousands of different financial markets to be traded, including shares, indices, cryptocurrencies and forex. IG offers more than 16,000 markets to trade, including more than 12,000 shares, 90 currency pairs and 30 indices.
Learn more about the different financial markets that you can trade or invest in
Trading vs investing: what’s the difference?
The difference between trading and investing lies in the means of making a profit and whether you take ownership of the asset. Traders attempt to profit from buying low and selling high (going long) or selling high and buying low (going short), usually over the short or medium term. Investors will also attempt to profit from buying shares at a low price and selling high, but over a longer term. They may also aim to earn income in the form of a dividend.
A popular method of trading includes CFD trading, while investors can choose from share trading. When you trade derivatives, you do not own the physical asset, but when you deal in shares, you own them.
| Trading | Investing |
| Gain exposure to the full value of your position with only a small deposit | Put up the full value of the investment |
| Speculate on short and medium-term price movements | Speculate on short, medium and long-term price moves |
| Take a position on a fall or rise in value | Profit only when your investment rises in value |
| Trade via an exchange or over the counter (CFDs) | ETFs, stocks, futures and options are traded on exchanges; bullion requires a specialist |
How to get started with financial trading
Open an account
Create a CFD or share trading account in minutes. Once we've verified your identity, add funds using your debit card or via bank transfer. If you’d like to try your hand at trading in a risk-free environment, you can open a demo account.
Find an opportunity
Browse over 16,000 markets and make use of our extensive range of tools and resources to find your first trade. Then, choose which market you want to trade based on your experience and risk appetite. All trading involves risk, especially if you’re trading using leverage, which is why you need a risk management strategy to protect against unnecessary losses.
Learn more about the ways in which you can minimise your risk
Open and monitor your first trade on a range of devices
Once you’ve completed these steps, it’s time to enter the market. When you trade with CFDs, you can speculate on both rising and falling markets. If you think the price will rise, you would open a position to ‘buy’, and if you think the price will decline, you open a position to ‘sell’. Your trading decision should be based on your analysis of the market and your trading strategy. You can trade on a variety of platforms, including PC, Android, Apple iPad and more. You can also utilise our powerful charts to spot trades and stay ahead of the curve.
Financial trading in summary
We’ve summarised a few key points to remember on financial trading below.
- Financial trading is about buying and selling assets in the hope of making a profit
- You can trade cash instruments such as forex and shares or derivatives such as CFDs and options
- Financial trading is carried out via an exchange or over the counter
- Companies, individuals, institutions and even governments trade
- A market that moves a lot is known as a volatile market
- IG offers more than 16,000 markets to trade, including shares, indices, cryptocurrencies and forex
- The difference between trading and investing lies in the means of making a profit and whether you take ownership of the asset
- To get started with financial trading, you simply have to open an account, research your market, find an opportunity and then open and monitor your first trade
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
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