Financial trading explained

Financial trading is no different to any other form of trading: it is about buying and selling assets in the hope of making a profit. Here we discuss the key concepts, participants and markets involved in financial trading.

What is financial trading?

Financial trading is the buying and selling of financial assets. It is carried out in one of two ways: via an exchange or over the counter (OTC). An exchange is a highly-organised marketplace where you can trade a specific type of instrument. For example, you can trade US shares on the New York Stock Exchange (NYSE). When you trade over the counter, the trade is made directly between two parties. For example, buying a CFD contract from a trading broker such as IG.

What markets can you trade?

There are thousands of different financial markets and financial instruments to be traded, including shares, indices, cryptocurrencies and forex. IG offers more than 16,000 markets to trade, including more than 12,000 shares, 90 currency pairs and 30 indices.

Whatever the instrument being traded, the intended outcome is always the same: to make a profit. If you buy an instrument at a low price and sell it at a higher price, you make a profit. If you sell an instrument for less than you bought it, you’ll make a loss.

Learn more about the different financial markets that you can trade or invest in

Who trades?

In financial markets, millions of companies, individuals, institutions and even governments are all trading at the same time. But what is a trader? A trader is defined as a person who buys and sells financial instruments with the aim of making a profit.

Some traders stick to a particular instrument or asset class, while others have more diverse portfolios. Some do lots of research before placing a trade, while others read charts and watch out for trends. But trades all have one thing in common – they all carry risk. Risk is a key concept to all types of financial trading. No matter what instrument is being traded, who’s trading it or where the trade takes place, balancing potential profit against risk is key to a successful trading strategy.

Trading vs investing: what’s the difference?

The difference between trading and investing lies in the means of making a profit and whether you take ownership of the asset. Traders attempt to profit from buying low and selling high (going long) or selling high and buying low (going short), usually over the short or medium term. Investors will also attempt to profit from buying shares at a low price and selling high, but over a longer term. They may also aim to earn income in the form of a dividend.

Popular methods of trading include spread betting and CFD trading, while investors can choose from share dealing or ETFs. When you trade derivatives, you do not own the physical asset, but when you deal in shares, you own them.

Trading Investing
Gain exposure to the full value of your position with only a small deposit Put up the full value of the investment
Speculate on short and medium-term price movements Speculate on short, medium and long-term price moves
CFD trading and spread betting are both free from stamp duty, while spread betting is also free from capital gains tax Pay tax on your investment, including capital gains on any profits you secure
Take a position on a fall or rise in value Profit only when your investment rises in value
Trade via an exchange (spread betting) or over the counter (CFDs) ETFs, stocks, futures and options are traded on exchanges; bullion requires a specialist

How to get started with financial trading

  1. Open an account
  2. Find an opportunity
  3. Open and monitor your first trade

Open an account

Create a spread betting, CFD or share dealing account in minutes. Once we've verified your identity, add funds using your debit card, PayPal or via bank transfer. If you’d like to try your hand at trading in a risk-free environment, you can open a demo account.

Open a live account with IG

Find an opportunity

Browse over 16,000 markets and make use of our extensive range of tools and resources to find your first trade. Then, choose which market you want to trade based on your experience and risk appetite. All trading involves risk, especially if you’re trading using leverage, which is why you need a risk management strategy to protect against unnecessary losses.

Open and monitor your first trade on a range of devices

Once you’ve completed these steps, it’s time to enter the market. When you trade with CFDs or spread bets, you can speculate on both rising and falling markets. If you think the price will rise, you would open a position to ‘buy’, and if you think the price will decline, you open a position to ‘sell’. Your trading decision should be based on your analysis of the market and your trading strategy. You can trade on a variety of platforms, including PC, Android, Apple iPad and more. You can also utilise our powerful charts to spot trades and stay ahead of the curve.

Financial trading in summary

We’ve summarised a few key points to remember on financial trading below.

  • Financial trading is about buying and selling assets in the hope of making a profit
  • You can trade cash instruments such as forex and shares or derivatives such as CFDs and options
  • Financial trading is carried out via an exchange or over the counter
  • Companies, individuals, institutions and even governments trade
  • A market that moves a lot is known as a volatile market
  • IG offers more than 16,000 markets to trade, including shares, indices, cryptocurrencies and forex
  • The difference between trading and investing lies in the means of making a profit and whether you take ownership of the asset
  • To get started with financial trading, you simply have to open an account, research your market, find an opportunity and then open and monitor your first trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.