Free Trading School · Level 1: What Is Trading?
Who is on the other side of your trade
Every time you buy, someone sells to you, and every time you sell, someone buys. Markets are an auction where thousands of participants with different goals meet. Knowing who they are explains a lot about how prices behave.
- Institutions: pension funds, mutual funds and insurers move huge amounts of money slowly. Their buying and selling creates the big trends.
- Banks and market makers: they quote prices all day and earn the spread. They are the reason you can almost always get a fill.
- Hedge funds and proprietary firms: professional speculators with research teams, fast technology and strict risk limits.
- Corporations and governments: they trade currencies and commodities for business needs, not for profit, for example a car maker buying steel or converting euros into dollars.
- Retail traders: individuals like you, trading their own money through a broker. Individually small, but together a noticeable force.
You are rarely competing with the slow institutions; you are often trading alongside them. Many of the strategies on this site try to spot where large players are buying or selling and follow them, rather than fight them.
The price you see is the result of an ongoing auction. Respect the crowd: when everyone is selling, a "cheap" price can get much cheaper.
Quick answers
Every time you buy, someone sells to you, and every time you sell, someone buys. Markets are an auction where thousands of participants with different goals meet. Knowing who they are explains a lot about how prices behave.
The price you see is the result of an ongoing auction. Respect the crowd: when everyone is selling, a "cheap" price can get much cheaper.
Selling first and buying back later, profiting if price falls. Short means you sell first and buy back later, so you profit when price falls.
Next lesson: The markets you can trade