How trading works, in plain English
No jargon. No hype. Just the basic ideas you need before anything else, explained with everyday examples.
What is trading?
Trading is buying something and later selling it, hoping the price has changed in your favour. It's the same idea as buying a concert ticket for £50 and later selling it for £80 (a £30 profit), or having to sell it for £35 because demand dropped (a £15 loss).
Where does it happen?
On financial markets: places, mostly online, where buyers and sellers meet. Ordinary people usually access them through a broker (a company that passes your orders to the market) using a trading platform (the app or website where you see prices and place orders).
What do people trade?
| Market | What it is | Everyday example |
|---|---|---|
| Shares | Tiny pieces of ownership in a company | Owning a sliver of a UK supermarket chain |
| Forex | Swapping one currency for another | Changing pounds into euros for a holiday |
| Indices | A basket measuring a group of shares | The FTSE 100 tracks 100 big UK companies |
| Commodities | Raw materials | Gold, oil, wheat, coffee |
| Cryptocurrency | Digital currencies on a blockchain | Bitcoin, Ethereum (very volatile) |
Why do prices move?
Because of supply and demand. More buyers than sellers tends to push the price up; more sellers than buyers tends to push it down. News, company results, interest rates and people's emotions all shift that balance.
Buying and selling (going "long" and "short")
- Buy (go long) if you think the price will rise.
- Sell (go short) if you think the price will fall. Some products let you do this without owning the thing first.
A simple worked example
Imagine a made-up company, ABC plc, with shares at £10. You buy 10 shares (£100). The price rises to £11: your shares are now worth £110, a £10 profit before costs. If instead the price falls to £9, they're worth £90: a £10 loss.
The costs
Trading isn't free. You may pay a spread (the gap between the buying and selling price), commissions, or overnight fees. Costs eat into profits and add to losses.
The part most people skip: risk
Prices can move against you, sometimes fast. Products using leverage (borrowed buying power) magnify losses as well as gains, and many retail traders using them lose money. That's why our course spends a whole module on managing risk, and why we recommend practising with pretend money first in our Practice Academy.
Words to know
- Broker
- A company that gives you access to the markets.
- Trading platform
- The app or website you use to see prices and place orders.
- Chart
- A picture of how a price has changed over time.
- Candlestick
- A chart shape showing the opening, highest, lowest and closing price for a period.
- Bullish / bearish
- Expecting prices to rise (bull) or fall (bear).
- Spread
- The small difference between the buy price and the sell price, a cost of trading.
- Leverage
- Controlling a bigger position with a smaller deposit; magnifies gains and losses.
- Pip
- A tiny unit for measuring currency price moves (e.g. 1.2500 to 1.2501 is one pip).
- Stop loss
- An instruction to close a trade automatically at a chosen loss level.
- Take profit
- An instruction to close a trade automatically at a chosen profit level.