Financial Dictionary -> Investing -> Trading

Trading is a wide reaching term that refers to any kind of exchange, whether monetary or just with goods, like ancient barter and food markets. The term is more modernly used in regards to the buying and selling of financial securities, stocks, bonds, derivatives and commodities. This is still a market place in the traditional sense, but instead of trading in the underlying assets, financial securities are used to represent their performance and value. This is specifically truer for commodity markets that track the performance of things like oil.

Somebody that undertakes trading is a trader. Many people trade in security for added financial security and income on top of regular jobs, others consider themselves professional traders and make their sole income from various investments.

Brokers are often wrongly labeled as traders. Although they may make transactions and do the physical buying and selling, their job is simply as a middleman between the traders. They make their money from brokerage fees not the securities they transact.

The most common form of trader is a stock trader, somebody that buys and sells stock in publicly floated companies. The aim of these traders is either to invest in a rising company, or to play the fluctuations in the market for profit.

A more modern type of trading that has risen in popularity in recent years is FOREX - Foreign Exchange Market. This is trading in currency to make a profit in your domestic or base currency. The concept of FOREX is to use a base currency to buy (otherwise known as exchange) a foreign currency, such as US Dollars for UK Pounds. If the market is analyzed correctly, upon trading back in to Dollars the trader should have more than they started with. FOREX is very risky and requires high amounts investment to make a worthwhile profit.