10 Essential Trading Concepts Explained
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ScribdTranslations10 Essential Trading Concepts Explained
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ScribdTranslations10 basic concepts of trading
Here are the 10 key concepts you should know before you start trading.
Here we show you some simple and understandable explanations for each one of
they.
CURRENCIES, SHARES, CRYPTOCURRENCIES, GOLD SILVER CRUDE
The average return we are looking for is 1% to 3% daily, 5% or 30% -30%
monthly.
We will operate on the stock exchanges of NYC, London, and Tokyo.
Forex
We start with the basics. Forex is a decentralized market in which
can operate with all the currencies that are managed in the world. Themarket of
Forexit is the largest in the world and the one with the most liquidity. Daily, it
they can move 5 trillion dollars. The most common currencies in pairs
son: EURUSD, EURJPY,EURGBP,USDJPY,USDCAD, GBPUSD, GBPJPY.
EURUSD - How many USD do I need to buy one EUR.
2. Trading
Trading involves the buying and selling of assets, whether they are currencies, futures,
actions…
Broker
He is the mediator between the client (you) and the financial market. That is, a person (or
a company) that operates in the market with the client's money, and executes the
orders received by this. We always recommend resorting to brokers.
approved.
4. Bid - PUT - SALE - BEARISH
The bid is the price at which one is willing to buy in the market, that is to say, the price
to which you can sell. Or, in other words, the price at which you will enter a
operation if you are selling.
5. Ask - CALL - BUY - BULLISH
The Ask is the price at which the market is willing to sell, that is, the price at
what you will buy. Or, in other words, the price at which you will enter a trade if
you are shopping.
6. CFD or Contract for Difference
Contracts for Difference (CFDs) are agreements to
operate on the price variation of an asset between the opening moment and
of the contract closure. It is the basis of trading. At no time, that asset is
comes to possess.
CFD Brokers
7. PiP
It is the minimal possible variation (the smallest movement) in the value of a pair.
of currencies. For example, if the euro/dollar pair is 1.2561/1.2564 and changes to
1.2563/1.2566 will have risen by 2 Pips.
8. Financial leverage
It is one of the most important concepts because it is, in turn, one of the
most notable characteristics of trading. Roughly speaking (in a colloquial way)
It means operating with more money than has actually been invested. Or, in other words,
method, finance an operation with own funds and a loan (use the)
indebtedness.
Let's give two examples of operations:
Without leverage
We spent 2 million euros on shares. After some time, those shares
they are worth 4 million euros and we sell them. The profit is 2 million euros.
We have achieved a return of 100%.
With leverage
We have 200,000 euros to buy shares, but, in reality, we can
buy shares worth 2 million dollars, because the operation us
allows a leverage of 1:10.
For this to happen, we received a loan of 1,800,000 euros (for example,
with an interest of 10%). We therefore invest 2 million euros (but from your
pocket only 200,000 euros have been released). After a year the shares are worth
millions of euros and we sell them.
Now we have to pay the interest on the loan (180,000 euros) and return the
own loan: in total, 1,980,000 euros. That is to say, we earned 4 million euros,
-1,980,000, minus 200,000 which was the initial investment: 1,820,000 euros.
The total profit is lower than the previous case, but the initial expenditure is 200,000, because
the profitability is 910%.
The risk of trading with leverage
The risk of trading with leverage is evident: if the stocks lose value,
You must return the credit anyway, for the losses (just like the gains)
if things go well) they multiply very significantly.
9. Spread
It is the difference between the market purchase price, that is, the price at which
you will sell (Bid) and the market selling price, that is, the price at which you will buy
(Ask). Bid and Ask are shown this way 1.5421/1.5423. In this case, the
spread would be 2 pips.
The spread is what many brokers use as a kind of commission.
Let's take an example:
You enter a trade with the previous Bid and Ask (1.5421/1.5423). You enter
buying, therefore, at 1.5423. Your position stands at -2 points, because if
you would sell it 2 points below the purchase price. You pay 2 points of
spread. Then, the price moves to 1.5430/1.5432 and you sell (at 1.5430, Bid price).
You have won 7 PiPs (which are actually 5, because you paid 2 of that before)
a kind of commission.
There are brokers that offerfixed spreads(the previous example) and othersspreads
variables.
Japanese candles
They are graphic representations that show the variation in value (price) of a
financial asset over a certain period of time. Let's imagine that
we want to know how the price has varied (daily) over a month of the
shares of the company 'X'.
We will see, then, a chart with candlesticks (one for each day of the month).
The candle will be a rectangle; if the price has risen during the day, that rectangle will be
green or white. If it has gone down, it will be red or black. Thus, looking at a one-month graph,
We will be able to see at a glance which days the price varied upward and which days it varied downward.
If it is green or white (meaning the price has increased) it will appear at the bottom.
the opening price and at the top the closing price. If it is red or black (the price has
It will be the other way around: at the top the opening price and at the bottom the...
closure.
This rectangle is crossed vertically by a thin line, called shadow, that
it will mark the maximum price and the minimum price.
Now that you are familiar with these terms, we invite you to use
our broker explorer, which will allow you to find the best online broker
according to your investment strategy in just 3 steps.
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