#What is the concept of trading?
Most of us do trading on a regular basis in our daily lives, even if we are not aware of it. For example, everything we buy from stores is a type of money exchange in exchange for the goods or services we buy. Therefore, the concept of trading can be simplified by defining it as an exchange of one thing for another. Usually, when the term trading is used to describe an action, we immediately realize that a good or thing has been exchanged for money, or in other words, buying something from one person and selling it to another.
Trading is based mainly on supply and demand in general, as the value of the thing that a person or group of people wants to buy changes depending on the change in supply and demand. The increase in demand for a commodity or financial asset means that there is a large number of people willing to pay the price to obtain it, and thus the increase in demand for a commodity will lead to an increase in its price or cost due to the need of a large number of people for it.
On the other hand, an increase in the supply of a commodity means that there are no purchase orders for it, or that the quantity of supply is higher than the quantity of demand for it, which may lead to a decrease in its price in order to attract customers to buy it.
Let's review the following example together to understand the topic more clearly.
Suppose you are in the car market - i.e. cars are being exchanged - which is the commodity here - for money, and you want to buy a specific model that can only be found in one store that has only one car of that model. If you are the only buyer in the store, you can most likely get it at a reasonable price. However, if there are a number of buyers who want to get the same model, this means that competition will arise between them to get it. In this case, it is expected that the dealer will raise its price because there are a large number of people willing to pay for it. This simply explains the first principle in the concept of trading, which is "high demand - the desire to obtain - leads to high prices."
On the other hand, let's assume that the store has 10 cars of the model you want to buy, and there are only two buyers. In this case, it is expected that the store will reduce the price of the car in order to attract more buyers. This step is a confirmation of the second principle of trading, which is "Increased supply - or the supply of the commodity - leads to lower prices."
So the above can be summarized by pointing out that the trading process works by exchanging one thing for another of equal value, and this value is determined based on the strength of supply and demand for this thing. The trading process has developed over the ages, and in order to obtain the same thing, the counterpart differed in each period from bartering for another commodity, to exchanging it for gold or other metals, and finally exchanging goods for money in its various forms (cash, credit, electronic, or digital).
Skills required before learning trading
After learning about the concept of trading and its nature, it must be known that trading is not limited to daily transactions and exchanges. Trading is not limited to commercial transactions. With the presence of different financial markets, trading turns into a profession and its concepts vary between speculation and investment. In order for an individual to possess the characteristics of a trader and become successful in it, he must possess a number of basic characteristics that distinguish a successful trader from others.
It should be taken into consideration that success in trading is not a coincidence, but rather a lot of effort is put into education, trial and error, and continuous development, perhaps for long days.
Below we review the most important features of the trader:
1. Ability to continuously learn and experiment.
You must have a motivation to turn learning trading and its basics into something fun. Trading is like any other profession or craft that you must learn and not just skim the surface of things, but rather fully understand and master the details. Markets are dynamic by nature, constantly changing, and affected by many external factors and news. Every day there is something new. Your learning process must also be fun in order to fully benefit from what you have learned.
Most traders succeed when they learn from their previous mistakes and do not repeat them, as the only way to get things to the end is to learn from previous mistakes and avoid them.
Always remember that you will not beat the market, and you cannot take revenge on it or be stubborn. There are some traders who have achieved strong successes that gave them excessive confidence to the point of arrogance, which led them to take higher risks, which ultimately led to higher losses. Also, when exposed to a loss in the market, do not try to take revenge or be stubborn with the market movements. Give yourself the opportunity to understand the reason for the loss, so that you can avoid it in the next deal, and thus achieve success.
2. Managing risks before making profits:
Risk is a major part of the trading process, and accepting risk, understanding its causes and focusing on managing it are the most important factors for success in managing your deals or trades, but most novice and inexperienced traders focus only on profits based on the idea that trading is only a means of quick profit without managing risk, and this exposes them greatly to losses, forgetting the monthly rule that "according to the risk comes the profits", which does not mean at all that you increase your risk in the hope of more profits, because then trading will turn into gambling, but start focusing on protecting what you have and at the same time give yourself a chance to make a profit.
3. Discipline and patience
Patience and forbearance are qualities that a successful trader always possesses, and this is what makes him make correct investment decisions that are not rash.
There is no successful strategy or approach that works all the time and brings profits. The main thing for success in trading is discipline, regardless of how it is invested. Discipline in preparing the trading plan and implementing it as required and according to what achieves your goals from the trading process, which leads to profit.
4. Objectivity in dealing with the market
One of the characteristics of a successful trader is to look at the market realistically and objectively, and on this basis he can make correct expectations that are closer to reality, in addition to being familiar with all the information you need to form a clearer picture of what you are thinking of trading in. The trader must be organized and decisive in decisions, which helps to organize your investments and know the success rate of each deal. You can also track the failure and success rates to the total capital.
About Trading in Financial Markets
Just as we trade in our daily lives in different commodity markets, we can also trade in different financial markets using the same principle, but before explaining the principle of trading in financial markets, let us first learn what financial markets are. There are several types of financial markets, main or derivatives, and the most important main types can be summarized as follows:
Capital markets include the stock market and the bond market: When we apply the principle of trading in the stock market as an example, trading will be about buying a share - or a small part of a company for a certain amount of money, and if the value of those shares increases, money is made by selling them again at a higher price.
In short, this would be trading buying something at one price and selling it again at another price in the hope that the selling price will be higher in order to make a profit.
Foreign exchange market or what is known as the Forex market: The concept of trading - exchanging one thing for another - applies in the foreign exchange market where one currency is exchanged for another, and if the price of the currency being purchased rises, the trader can make a profit by reselling it at a higher price, and vice versa. Here also we apply the principle of trading, which is buying a currency at a certain price and then selling it at a different price in the hope that the price will rise.
Trading in the currency market is somewhat different from other financial markets due to the mechanism of work in it, the trading system or what is known as the pairs system which is somewhat similar to the barter system - as we talked about in detail in the topics, what is Forex, and the pairs system in the currency market
Commodity Market: In the commodities market, which includes major commodities such as wheat, sugar, cocoa, gold and oil, commodities are traded in the form of spot, forward or futures contracts. The trading principle is applied when buying a commodity contract in the hope that its price will rise in the future, or selling a commodity contract in the hope that its price will fall in the future, which is known as trading by speculating on commodity prices through contracts for difference (CFDS).
Cryptocurrency Market: The principle of trading in the cryptocurrency market is applied, such as the foreign exchange market or the commodities market, by purchasing a specific digital currency for an amount of money. If the price of the digital or cryptocurrency being purchased rises, the trader can make a profit when reselling it at a higher price, and vice versa.
Before deciding to trade in the various financial markets, the trader must know the basics of trading in general, what each market is and how to deal with it in order to develop successful strategies that facilitate the trading process in these markets. For example, before entering the foreign exchange market, there are main topics that you must be aware of as a trader, and by the same logic before entering the stock market, commodities, digital currencies, or other derivative financial markets.