Explanation: What Is Trading?

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What is Trading?

Everybody is familiar with the term “trading”. Most of us have traded in our everyday life, although we may not even know that we have done so. Essentially, everything you buy in a store is trading money for the goods you want.

On ArrowPips you will learn how to trade the financial markets online – but exactly what is online trading? This article will give you an understanding of how trading can be defined and how online trading works.

The principles of trading:

The term “trading” simply means “exchanging one item for another”. We usually understand this to be the exchanging of goods for money or in other words, simply buying something.

When we talk about trading in the financial markets, it is the same principle. Think about someone who trades shares. What they are actually doing is buying shares (or a small part) of a company. If the value of those shares increases, then they make money by selling them again at a higher price. This is trading. You buy something for one price and sell it again for another — hopefully at a higher price, thus making a profit and vice versa.

But why would the value of the shares go up? The answer is simple: the value changes due to supply and demand – the more demand there is for something, the more people are willing to pay for it.

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