I’m glad you are here looking for What is financial trading! It means you are looking for a way to make more money and make your way to your financial freedom! And let me tell you, learning about trading is a great way to start.
Many people who come closer to MDC Trading Academy have some doubts about trading; they think it is a complicated profession that only very experienced people can do. But this is not correct; even if it needs particular knowledge, is something you can learn too!
But don’t worry! I’m going to teach you all you need to know about trading. So keep on reading, and learn from the definition of trading until how to start operating the markets!
What is Financial Trading?
Let’s start with the most basic: what is financial trading? In financial terms: Trading is the act of selling, buying, or exchanging securities in the financial markets. As simple as that. Some of the most known financial securities are stocks, commodities, currency pairs, or other financial instruments.
The main objective of active trading is to obtain a profit on the transactions. It means that the trader takes advantage of both the rising and the falling in the price of the securities on the markets, that way he can enter and exit positions over a shorter time frame.
I can mention two types of traders if we define them by their expertise: the amateur and the professional. Both can earn money, but only one can live by trading: the professional. So, before you continue reading, make a pause and think: how would you like to be your trading career? The answer certainly will make a difference in the efficiency of your operation.
But do not worry! If you are not sure now, wait until the end of this article and repeat this question, and of course, you can be a professional too. At MDC Trading Academy we specialize in teaching and helping people achieve their financial goals.
In the end, choosing either option implies that you will need to learn how to analyze the price of securities. The real difference will come in the efficiency of your strategy, and by learning more, it will be better.
Now, keep on reading and let me teach about some terms you will constantly hear: financial markets, securities, simulators, brokers, market indicators, and more.
Examples of Financial Markets
Financial markets are any place that provides traders the facilities to trade financial instruments, also known as securities. They are a way for companies to raise capital. On the other hand, it also allows investors to profit by buying and selling positions in the markets.
The main financial markets you should know are:
In this market, companies and governments raise capital in the short or long term, so they can fund their investments. This market includes the Stock and the Bond Market.
Maybe you heard about this one, it is the most popular. Companies get enlisted in the Stock Exchange, so they can raise capital by selling small ownerships called shares. As a trader, you can buy them and be the owner of a small part of the company.
The bond market is also known as the debt market. Through this, the Government can raise capital by selling debt in a financial instrument called bonds.
Forex is also known as the Foreign Exchange Market, which facilitates the trading of foreign exchanges.
The derivatives market is the financial market for financial instruments such as futures contracts, options, or swaps on a whole range of underlying products.
Now that you know which financial markets exist, let me teach you about financial assets.
What is Security in Finance?
Security is a tradable financial asset. It means that it is a financial instrument that holds some monetary value.
There are several securities, but keep an eye on one called futures:
An option is a contract that gives the buyer the right -but not the obligation- to buy or sell the underlying asset at a predetermined price at or before the contract expires. These contracts let the trader operate a future value of a financial asset from the forex, stock, or commodities market; it can also take its value from stock market indices.
Futures are contracts that allow people to agree on the price of a present financial asset for the purpose to be sold or bought in the future on a specific date at the price agreed. They are different from options because contract futures just acquire the obligation and options just the right to sell or buy.
When a company is listed on the stock exchange it means it went public in order to raise capital from the general public. The company sells small parts of its ownership to keep on funding its operation and continue growing. These small parts are called shares.
There are two ways for you to analyze stocks: Fundamental or Technical Analysis. The Fundamental Analysis is done by understanding the economic context around the company and analyzing its financial statements or some other advantages the company has. The Technical Analysis implies finding trends in the behavior of the stock price in order to find good positions to sell or buy.
Thanks to the fluctuation in the exchange of currencies, traders can exchange one country’s currency into another, speculating on the possible changes in the rates of various currency pairs.
Cryptos are digital currencies that were created to be independent of financial institutions and governments. There are many coins such as Bitcoin, Ethereum, BNB, Solana, Tether, Dogecoin, and Cardano.
And why did I tell you to keep an eye on Futures? Because in MDC Trading Academy we are experts in trading them, so be sure to check out our blog, because we are going to write some helpful articles to teach more about trading with futures.
What is a Broker?
It is the institution or an entity that works as a third intermediary in the trading operation by letting the traders buy and sell securities in the financial markets. There are international and national brokers, you can find their trading platforms on websites or smartphone apps. It is necessary for your trading activity because you will use it for making your transactions.
It is very crucial that you analyze the options of the brokers available; you can find some advantages from broker to broker: maybe in the commissions they charge, or the usability of their platform.
What is a stock market index?
It is an index that measures a stock market; it helps the traders compare current stock price levels with past prices to calculate market performance. Many countries have their own stock market index via a weighted average of selected stocks.
Some of the most important are:
- S&P 500
- Dow Jones
- Russell 2000
- ESTX 1000
- IPC MEXICO
- Nikkei 225
Why do Financial Trading?
Trading is almost like having your own business. And, as a business, the money you can earn will depend on the effort you put into it. But like I said, “is almost”, which means you don’t have all the other responsibilities of a business: salaries of employees, inventory, or the necessity to work in a specific place.
In MDC Trading Academy we like to promote trading as a way of life and focus on freedom. It means that if you are a professional and efficient trader, you can work anywhere in the world and just with a certain amount of your time. We do not talk about being rich, having big houses, expensive cars, or other luxuries; those things shouldn’t be your motivation. Thinking about them only will distract you from your trading activity, and will generate false expectations.
That being said, the simple answer for why do trading is because you can achieve financial freedom and, in your journey, you will acquire magnificent knowledge about finance and the economics of the world.
How Does Financial Trading Work?
To answer this question, I will go back to what I said to you before: trading is the exchanging, selling, or buying of securities in the financial markets. The main parts involved in this process are the trader, the financial markets, the securities, and the broker. At an external level, you can find the companies, the financial indices, and the institutions in charge of the regulation of the trading activities.
To put it in simpler words: the trader seeks to profit by analyzing the movements of the prices of the securities. For example, if you find a futures contract at a price of $1, then you buy it. With all your knowledge you predict that the price of the futures contract probably will go up to $3 in the next few hours. Then you wait, and fortunately, this happened, so, at that moment you sell it at $3. You will profit $2 because the future contract just costs you $1 and you sell it at $3.
Of course, every financial market and all securities behave in a certain way. In order to trade some security, you will need to learn more about it and have a strategy that works for that particular security.
Tips for Successful Financial Trading
To develop a successful trading career, you will need to be really committed to your objectives. Even if you want to make an extra source of income, it will be key for you to do the next:
Learn as much as you can about trading. The more you know, the better. This knowledge should focus on developing a strategy that will be effective in terms of maximizing profit and managing the most risks possible to minimize losses. Learn about the technical analysis and how to read the charts; also learn about the indicators and the tools available in the brokers to understand the movements of the security’s price.
Be aware of what is happening in the world. Macroeconomics and microeconomics impact directly the financial markets and the price of the securities; so, be in constant contact with the events in the world.
Be analytic and critical about your trading activity. This applies in terms of knowledge but also about you. You will need to understand everything about your strategy: is it working? What can you change? Why are you not earning enough? Every question you can ask to yourself about your performance will help you to improve it.
Regarding technical analysis matters, you will need to be certain about what you are looking at in the charts. In there you will find patterns and trends in the behavior of security that will allow you to make decisions. Every movement you make will need to be justified; trading isn’t about luck, it is about knowledge.
You will become a master in trading by practicing. First, you need to learn the theory, but by practicing is when you are going to know if you are really understanding how trading works. By practicing you can test your strategies.
And do not worry about losing money! There are simulators or demos for trading. With these kinds of tools, you can practice as if it were the real market but without the risk of losing your money. This should be your first approach to trading securities. We do not want you to lose money and be disappointed about trading.
Even if it is just practice, take notes of what you are doing. You will need to understand everything about what you practiced to really know what is working and what isn’t, also, to identify the weak points in your strategy, and in the subjects you are not that familiar with.
Create a Strategy
Using a strategy will serve you as a guide for your trading activity. In your strategy, you will set your goals and objectives. The following points will help you to make one:
- What is your trading intention: you need to find out your “Why?”, this is your starting point. Once you have it clear, you will be able to establish your motivation or reason for trading, and also how far you want to go in your level of professionalism. Trading is an exciting path, and the more you are committed to this activity, you will obtain better results in your earnings. This is a very personal decision, take into account your time availability and other personal factors.
- What is your experience: be critical about what you have learned and what you also need to learn. Trading implies investing and operating with your money, so avoiding the most losses possible is key to not affecting your financial health. Do not take unnecessary risks; people tend to lose money at trading because they do not take the necessary time for learning it right. To be a trader requires emotional intelligence and responsibility.
- Organize and manage your activity: prioritizing the log of any operation you make is key. This will allow you to identify if your strategy is profitable or not; be aware of how much money you can invest and how much time you can spend in this profession. If you have this clear, you are going to improve every passing day.
In the end, it all comes to learning, practicing, and operating. Get close to people who are traders, find a mentor, and do not stop learning. Those aspects will make the difference. But mostly: be sure about your own ability and trust in yourself. I know there are many things to learn but you can do it. Here we are to help you in your trading journey.
How to Know What to Trade?
To have a better perspective of which securities you should trade you will need to make an analysis. It depends on the financial market and the security itself; but also, it depends on your objectives and your trading strategy: is it long term? Short term? Are you trading futures?
For example, trading with futures offers many advantages like liquidity (because there are a broad spectrum of products and a wide range of participants trading millions of contracts on a daily basis), leverage, and tax advantages.
Find the financial market that suits you best.
Financial Trading VS Investing
Financial trading and investing are two different methods to earn more money. The main difference resides in the way of doing it and in the period of time. Trading usually is an activity that seeks profit in a short-term period of time by taking advantage of the changing of prices in securities; Investing usually is a long-term method that implies putting money in financial instruments that increase their value as time passes. For example: investing in the housing market.
Both are great ways for you to consider! Just have in mind your personal needs in the aspect of time. In the end, it depends on your personal objectives and the capital you are willing to invest.
How Long Does a Trade Last?
The duration of an operation should depend on every trader and his strategy. This is called “Trading positions”, when you “open a position” it means you buy a security. When you “hold a position” it means the security is still in your possession: you are neither selling nor buying. And finally, when you are “closing a position” is the time you sell the security. How long should a position last depends on the financial market and your strategy.
Read the next section and find out some of the strategies that exist:
Financial Trading Strategies
Your trading strategy will depend on your goals, time available, and capital. But most important, is the plan you are going to use for your trading activity; it is a guide for you.
Creating a new strategy from scratch can be hard; so, the best way is to choose one proven strategy and adapt it to your needs.
Let me teach you about some popular strategies:
This strategy consists of the analysis of the charts to understand the movements and oscillations in the financial markets, this in order to find uptrends and downtrends. This means you can let your position open for days or weeks, with the objective to maximize your profit when the market goes up or falls.
This strategy consists in copying what more experienced traders are doing. You expect them to make successful operations and you deposit your trust in their strategies. But keep in mind that not everybody has the same capital, so it is important to limit the operation to not attempt against you.
High Frequency Trading
This strategy is used and backed up for hedge funds, banks, or big institutions. It consists of the use of automated technology through algorithms. They can make a high volume of operations in a fraction of a second.
The objective of this type of strategy is to hold a position for several months. It means you can not sell the security during that certain period of time. It is very important to understand the potential of the stock to obtain the most possible amount of profit.
It is different from the previous strategy in terms of time. In this strategy, you hold a position for more than a year. It helps to have a broad understanding of a company in which you are investing, and to see how the security develops through time.
This strategy is known for its dynamism. It consists of making operating during the same day. You will need a fast and certain analysis because this strategy takes advantage of the volatility in the price of the securities.
How to do Day Trading?
For a successful day trading strategy you should:
- Have the right mindset: be ready to deal with some losses, learn on your own, and use the right amount of time for this activity.
- Understand the financial market: you will need a solid understanding of the technical aspects; also keep in mind everything happening in the world that can impact the price of the security you are trading.
- Set a strategy: set your goals and your times; be ready to adapt them to improve efficiency.
- Create a trading plan: how much capital are you going to invest? How much will you use for each operation? Which security are you trading with and how frequent?
Manage your capital and set the amount of money that you will use throughout the day
- Operation cost: be aware of the commissions of a broker; you will be making many operations throughout the day, so, this will have an impact on your earnings.
What is a Trading Journal?
This is one of the most important tools for your trading journey. It will help you to have a log of all your trading activities operating the financial markets. It needs to have the most relevant information and it works as a guide to understanding your failures and success. A trading journal should contain:
- Operation date
- Type of security
- Type of operation
- Selling or buying price
- Strategy implemented
- Amount of profit or loosing
- Comments and observations
Why is Financial Trading Important?
Financial trading is important because it helps the economy of a country to grow; it supports jobs and lets the companies keep developing new products and technology by funding their operations by raising capital.
How do I Start Financial Trading?
If you feel ready to start trading, you should open a brokerage account. Remember to find one that fits all the needs you have. And be sure to practice enough on a simulator, so you will learn the most possible before trading with your money.
The next thing you need to do is keep on learning, and we have the perfect resource for you. Here in MDC Trading Academy we have a very complete basic trading course, with it you can learn even more about the types of markets and how to start analyzing the markets to find investment opportunities!
That being said, let me ask you something. Are you ready to improve your earnings and for a better life? Start learning to trade and build your way for your financial freedom!
What are the Types of Trade?
The type of trade will be defined by the strategy and style of trading. For example, swing trader, fundamentalist trader, or technical trader.
When can you Trade?
It depends on the financial market. The futures market has the next hours:
CME and CBOT
Sunday 5:00 p.m. – Friday 5:45 p.m. CT with no reporting Monday – Thursday 5:45 p.m. – 6:00 p.m. CT
CME OTC FX
Sunday 6:00 p.m. – Friday 5:45 p.m. CT with no reporting Monday – Thursday 5:45 p.m. – 6:00 p.m. CT
NYMEX and COMEX
Sunday 5:00 p.m. – Friday 4:00 p.m. CT with no reporting Monday – Thursday 4:00 p.m. – 5:00 p.m. CT
How Many Times Can I Trade in a Week?
This depends entirely on the amount of capital you have and the financial market you are trading in.
Which Financial Trading is Best for Beginners?
The best trading will be the one that suits your personal preference. Try to learn about the ones that you understand the most, and then practice in simulators. In MDC Trading Academy we operate with future contracts and we can teach you everything you need to start.
Is Financial Trading a Good Career?
Yes! Definitely, it is! It can give you personal freedom and financial freedom. And everyone can learn it, you just have to be committed to learning.
Is Financial Trading Difficult to Learn?
It is not easy. Like many other fields, it requires effort and time. Learning to trade is like any other activity, you have to be willing to learn and to make your life better!
Stock Market investor since 1990. Professional futures trader since 2008. Finance Specialist and Systems Engineer; he worked for more than nine years on Wall Street. Head Trader and Co-Founder of MDC Capital Group with vast experience mentoring traders. Architect and designer of the MDC methodology. His passion is to transform lives through trading.