Trade (finance)

Exchange of a security for cash

In finance, a trade is an exchange of a security such as stocks, bonds, commodities, currencies, derivatives or any valuable financial instrument for "cash". Such a financial transaction is usually done by participants of an exchange such as a stock exchange, commodity exchange or futures exchange with a short-dated promise to pay in the currency of the country where the 'exchange' is located.

The price is agreed between the buyer and seller on the execution of the trade and is guided by the supply and demand for that financial instrument.[1] Once the trade is executed a number of steps take place until the trade is finally settled. There is a pre-defined settlement period for this to happen in each market.

Trading in financial markets is key part of a countries economics, providing liquidity, enabling price discovery, and facilitating efficient capital allocation.[2] When trading in financial markets, financial traders balance risk and potential reward to attempt to make profit from the trades.

## Life cycle

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The securities trade life cycle involves:

1. Order initiation and execution. (Front office function)
2. Risk management and order routing. (Middle office function)
3. Order matching and conversion into trade. (Front office function)
4. Affirmation and confirmation. (back office function)
5. Clearing (back office function)
6. Settlement. (back office function)

## Participants

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Participants in the financial markets include:

* Speculators or retail traders
* Institutional traders such as insurance companies, private funds, hedge funds
* Central banks such as the U.S. Federal Reserve(Fed), Bank of Japan (BOJ), European Central Bank (ECB)
* Corporations such as Multinational companies (MNCs)
* Governments

## See also

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* Electronic trading platform
* Stockbroker
* Stock exchange
* Stock market
* Trader

## References

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1. ^ "What is Trading?". tradimo.com. Retrieved 15 October 2019.
2. ^ "Who Should Trade, and Why Trade?". tradingkey.com. Retrieved 2024-10-09.

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Financial markets

Types of markets|

* Primary market
* Secondary market
* Third market
* Fourth market

Types of stocks|

* Common stock
* Golden share
* Preferred stock
* Restricted stock
* Tracking stock

Share capital|

* Authorised capital
* Issued shares
* Shares outstanding
* Treasury stock

Participants|

* Broker
* Floor broker
* Inter-dealer broker
* Broker-dealer
* Market maker
* Trader
* Floor trader
* Proprietary trader
* Quantitative analyst
* Investor
* Hedger
* Speculator
* Arbitrager
* Scalper
* Regulator

Trading venues|

* Exchange
* List of major stock exchanges
* Over-the-counter (off-exchange)
* Alternative trading system (ATS)
* Multilateral trading facility (MTF)
* Electronic communication network (ECN)
* Direct market access (DMA)
* Straight-through processing (STP)
* Dark pool (private exchange)
* Crossing network
* Liquidity aggregator

Stock valuation|

* Alpha
* Arbitrage pricing theory (APT)

* Beta
* Buffett indicator (Cap-to-GDP)
* Book value (BV)
* Capital asset pricing model (CAPM)
* Capital market line (CML)
* Dividend discount model (DDM)
* Dividend yield
* Earnings yield
* EV/EBITDA
* Fed model
* Net asset value (NAV)
* Security characteristic line
* Security market line (SML)
* T-model

Trading theories
and strategies|

* Algorithmic trading
* Buy and hold
* Contrarian investing
* Dollar cost averaging
* Efficient-market hypothesis (EMH)
* Fundamental analysis
* Growth stock
* Market timing
* Modern portfolio theory (MPT)
* Momentum investing
* Mosaic theory
* Pairs trade
* Post-modern portfolio theory (PMPT)
* Random walk hypothesis (RMH)
* Sector rotation
* Style investing
* Swing trading
* Technical analysis
* Trend following
* Value averaging
* Value investing

Related terms|

* Bid–ask spread
* Block trade
* Cross listing
* Dividend
* Dual-listed company
* DuPont analysis
* Efficient frontier
* Financial law
* Flight-to-quality
* Government bond
* Greenspan put
* Haircut
* Initial public offering (IPO)
* Long
* Mandatory offer
* Margin
* Market anomaly
* Market capitalization
* Market depth
* Market manipulation
* Market trend
* Mean reversion
* Momentum
* Open outcry
* Order book
* Position
* Public float
* Public offering
* Rally
* Returns-based style analysis
* Reverse stock split
* Share repurchase
* Short selling
* Short squeeze
* Slippage
* Speculation
* Squeeze-out
* Stock dilution
* Stock exchange
* Stock market index
* Stock split
* Stock swap
* Trade
* Tender offer
* Uptick rule
* Volatility
* Voting interest
* Yield

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