The 1×1 of stock market trading - Explained for beginners

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This is exactly the reason why more and more investors decide to trade on the stock exchange. However, many do not know what should be considered when trading, what types of stock exchanges there are and what role actually brokers play in stock market trading. In the big stock market trading 1×1, I go into these questions and explain to you step-by-step how to trade on the stock market.

How does stock exchange trading work ? - Basic basics

In order to describe stock market trading in an understandable way for beginners, it is worthwhile to resort to a simple example that explains stock market trading using examples. First of all, it helps to split the word stock exchange trading. Consequently, the words stock exchange and trade are formed. A stock exchange is an open place, accessible to everyone, where products are offered. On the market in the city it is apples, pears or even potatoes. On the financial exchanges, however, it is shares, commodities, derivatives and other asset classes. These can then be traded. Thus, stock exchange trading is an opportunity for traders to choose from a range of financial products and trade them profitably.

An exchange is a marketplace where securities and commodities are traded. Supply and demand form the price.

Trading, of course, always has something to do with trading skills and a good strategy. At the fruit exchange, for example, you can haggle over the price. Basically, however, there is always a price, which is made up of the ratio of supply and demand. The same applies to stock exchange trading. Here, too, buyers and sellers have a direct influence on price formation.

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What kind of exchanges are there?

As you can certainly imagine, there are different stock exchanges in the world. These also differ in their type. The type of exchange is directly related to the asset classesin the trading terminal -, that can be traded in this marketplace. A distinction is made between the following types of exchanges when it comes to stock market trading:

  •     Securities exchange
  •     Special stock exchange
  •     Commodity exchange
  •     Futures exchange
  •     Foreign exchange

The best known type of stock exchange is the securities exchange. Securities are traded on these. The New York Stock Exchange is world famous. However, there are also stock exchanges for other trading objects. As already mentioned, stock exchanges are initially only marketplaces. What is traded depends on the particular exchange. For example, currencies are traded on a foreign exchange, contracts on a futures exchange, and commodities on a commodities exchange. There are also the special exchanges, but these are represented rather rarely and specialize in commodities such as cotton.

What is the difference between on-exchange and off-exchange trading venues?

Traders can trade and make an investment in both on-exchange and off-exchange trading venues. For beginners in trading, it is therefore important to know the difference between an exchange trading venue and an off-exchange trading venue. For this purpose, it is first useful to determine which tasks are characteristic for an exchange:

  •     The stock exchange as a marketplace: brings together sellers and sellers and enables continuous trading of trading objects, taking into account transparent pricing.
  •     The stock exchange as an investment for investors: enables the consistency of the competitiveness of companies through a valuation as well as the increase of the awareness of the organization.
  •     The stock exchange as a driver of growth: if we consider stock exchanges in terms of national economy, they help to create new jobs through the liquidity of securities trading and investment in companies
  •     The stock exchange as a way of investing money for private investors: profit from the growth of investments

This term covers all trading opportunities that do not take place via the stock exchange. Off-exchange trading is also referred to as direct trading and is therefore a transaction that is carried out directly with a market participant. No intermediary is required here. In most cases, however, off-exchange trading venues are also subject to different regulations than stock exchanges.