Introduction to Financial Assets Trading
Welcome to the financial markets! This article will provide you with a brief introduction to trading products such as gold, oil and currency pairs.
Imagine, you lived in the 1900s and you had to travel from the United Kingdom (UK) to the United States (US). You would need to find a way to exchange currency at a fair rate just before you left the UK or just after you arrived in the US so that you can pay for goods and services in local currency. Neither task was easy without being swindled. Also, how would you confirm if you received fair market value?
Today, millions of investors trade on the financial markets each day to buy or sell a variety of financial products. Location is unimportant as an investor in Japan could trade the same product and see the same prices as an investor in London. Banking systems and online trading platforms have made this possible.
Therefore, if you were making the same trip between the UK and the US today, you can go online and receive up-to-date market data on currency pair rates before going to exchange your currency, so that you would prevent any dodgy and unfair currency exchange from pounds to US dollars. Then, when you exchange your currency, you made a financial transaction with the financial markets and without realising it, you are already participating in the financial markets!
Many investors have a physical need to trade, i.e., they require the actual delivery of the product they are buying. Airline companies need to buy jet fuel, jewellers need to buy gold, grocery stores need to buy fruits and vegetables, etc. However, there is another type of investors, called speculators, who are only interested in buying or selling a product and then anticipate that its value will change so that they will make a profit. These types of traders invest in Contracts For Difference (CFDs), which became hugely popular during the last few years.
Read on about the difference between physical exchange versus CFDs.