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Introductory information

For invfx.co.uk users

Introduction

If you are new to trading the fnancial markets your frst thought will be «Where do I start?», many new traders may be overwhelmed when they open their demo trading account for the frst tme and might try to run before they can walk.

Understanding the basics of trading is an essental startng point and in this the two-part artcle we will cover the key characteristcs of trading, the various fnancial instruments we can trade, the concept of going long and going short, trading platorms, startng capital and what it takes to succeed.

Investing and trading are two diferent ways that we can proft from the fnancial markets. Many people new to the world of finance can be confused over what is the diference between the two. Here we will describe what we mean for each.

Detailed description for Investors and Traders

The main goals and objectives of both the investor and the trader

I am Investor
I am Trader

I am Investor

The aim of an investor is to gradually build up their net worth by buying and holding a portfolio of stocks, bonds, mutual funds or other investable instruments.

Investor

Investors take physical ownership of the instruments they have purchased. So for example, if an investor buys shares in a company they will physically own a portion of that company and will receive a certificate of ownership. A shareholder can carry certain privileges such as voting rights on certain corporate actions, as well as benefit from dividend payments on the profits.

While investors are often satisfied with annual returns of up to 15% depending on the risk element of the investment, some traders seek to make returns that are a multiple of this, as they can benefit from the dips in the market as well as the increases because of the ability to short sell. The length of time a trader has a position open for can range from seconds to years. This timeframe is entirely up to them and relates to their objectives, account size, risk profile and time they can commit to trading. Trading requires a more hands on approach than investing and regular assessment of market conditions is essential when traders have open positions.

I am trader

Trading initially implies a more frequent conclusion of short-term transactions and, accordingly, regular assessment of market conditions. Naturally, in this case there is no ownership of the underlying asset, so traders are speculating on price movements. Thanks to this, traders can make profits both in the growth of markets and in the fall. A trader can buy an asset, just like an investor, but has the ability to sell an instrument without owning it. This is known as short selling or selling securities without coverage, and this is why many people are especially partial to trading. (We will discuss buying and selling in more detail later)

Trader

A trader, in the narrow sense of the word, is a trader who trades on an exchange. Moreover, he can trade also as a businessman, with his own money or with money that investors have entrusted to him. Or he can work as a hired trader for a salary, for example, in a bank. In this case, his employer trusts his money and all the profit goes to the employer, and the salary is paid to the trader.

WHAT CAN WE TRADE?

A financial instrument is a tradable asset of any kind i.e. it is an asset we can buy or sell at a monetary value on a financial market. Examples of financial instruments include currency pairs (i.e. the foreign exchange/FX market), commodities, stock indices and the stock of companies (also known as individual equities). As we do not take ownership of these assets when we are trading we are actually speculating on the price of futures contracts FX instruments.

The price of these contracts is directly related to the price of the underlying instrument. So any movement in price of the physical asset will see a similar move in the price of the contract.

Indicies

Choose from a comprehensive selection of indices, and join the action investing on exchanges spanning every continent, from the Hong Kong Hang Seng, to the US Nasdaq, or the German Dax.

Commodities

Pick from Invesco broad selection of commodities. Trade raw energy products, such as crude oil and natural gas, agricultural commodities like sugar and corn, or metals such as gold and silver.

Useful article

For invfx.co.uk users

Check out our next beginner articles where we will cover the concept of going long and going short, trading platforms, the cost of trading and what it takes to succeed:

Forex

Invesco FX offers an exceptionally wide variety of major, minor and exotic currency pairs. Invest on the global forex markets, benefiting from narrow spreads and versatile leverage reaching 200:1.

Market

Add variety to your trading portfolio with our diverse suite of trading tools.

Crypto

Like Forex, cryptocurrencies trade against other currencies in a pair, such as Bitcoin against USD, or against EUR. Invesco offers cryptocurrencies including Bitcoin, Ethereum, Litecoin, Dash.

Forex

Market

Crypto

The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical location (like the NYSE, BSE, LSE, JSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange.

Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, similar to stock exchanges. Financial markets attract funds from investors and channel them to corporations—they thus allow corporations to finance their operations and achieve growth. Money markets allow firms to borrow funds on a short term basis, while capital markets allow corporations to gain long-term funding to support expansion (known as maturity transformation).

The following table illustrates where financial markets fit in the relationship between lenders and borrowers:

Relationship between lenders and borrowers
Lenders	Financial Intermediaries	Financial Markets	Borrowers
Individuals	FBanks	Interbank	Individuals
Individuals	Insurance Companies	Stock Exchange	Stock Exchange
	Pension Funds	Money Market	Central Government
	Mutual Funds	Bond Market	Municipalities
		Foreign Exchange	Public Corporations