SUMMARY

• Bonds, stocks, currencies and commodities are all types of financial instruments
• The price of a financial instrument moves up and down according to the supply and demand. If more people want to buy it and fewer people want to sell it, the price will go up. If more want to sell and few want to buy, the price will go down
• The ‘buy’ price is also known as the ‘offer’ price. The ‘sell’ price is also known as the ‘bid’ price
• A broker is a ‘middleman’ who can carry out your orders to trade, usually for a fee, or commission. But these days, many people use the internet to trade directly themselves
• When you begin a trade, you are said to ‘open a position’ and when you end a trade you ‘close the position’ and accept your profit or loss
• A ‘market order’, lets you buy or sell at the current market price
• A ‘limit order’ lets you choose the price at which you wish to buy or sell in the future
• A ‘stop order’ is a type of limit order, which closes a trade at a price that you specify. This limits the amount of money you could lose if the market moves against what you had hoped. It is also used to ‘lock in’ any gains if the market move against you in the future
• If you ‘buy’ a financial instrument and believe its price will go up in the future, you are considered to have a ‘long’ position on that instrument
• If you sell an instrument, because you believe its price will go down, you are considered to have a ‘short’ position on that instrument
• Market prices and information how a company is performing can be found on the internet, TV and in newspapers and magazines
• A good way to develop your skills and become familiar with trading terminology is to practice trading with play money