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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

The securities trade life cycle involves:

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

Participants

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

References

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

v t e 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 stock exchanges Trading hours 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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Life cycle

Participants

See also

References