Trading Explained

Written by Trader Maker

Everyone has heard of trading and the financial markets. 'The FTSE was up 1% today' or 'the pound is up 2 cents against the dollar' are typical examples of things said on the business news round ups.

Why should this interest you? Well the simple answer is that it's interesting and if you understand the reasons why you can make money from this.

Why do markets move?

What makes them go up and down? Its all about Supply & demand.

The best way to explain why any markets move is with an example. BP is a good one to start with.

Recently there was well published incident where there was spill from one of the oil wells BP were drilling at. Shares in BP are traded on the stock exchange (FTSE 100) and when the news came out investors took a view on how this would impact the value of the company and therefore its share price.

Reasons for this – Investors believed:
The cleanup costs would more than likely be millions or even billions

1) The cleanup costs would more than likely be millions or even billions
2) The damaged done to BPs reputation would have a direct effect on its future profits
3) There would be a disruption to business and the ability to produce oil
4) The possibility of government fines and future sanctions

In its basic terms this was BAD news for the company so the stock price was less attractive to investors and it went down.

This is about as basic as you can make trading, good news will draw investors and raise something's value and bad new will generally make things less attractive and reduce its value. This rule applies to most financial markets except bonds. Again not to complicate things, stocks, most commodities, CFDs, futures and FX will all trade this way.

Click here to monitor the share price in decline in more detail.


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