Legal Definitions - trading

Trading refers to the general activity of buying and selling goods, services, or financial instruments with the intention of making a profit.

• Example 1: A large electronics retailer purchases thousands of smartphones directly from manufacturers and then sells them to individual customers through its stores and website. The retailer engages in trading by buying products at a wholesale price and selling them at a higher retail price to generate revenue.

• Example 2: A country's national oil company sells crude oil to various international buyers on the global market. This is an example of trading commodities, where the country is exchanging a natural resource for financial gain.

• Example 3: An online platform facilitates the exchange of digital collectibles, allowing users to buy and sell unique virtual items. Each transaction between users on this platform represents a form of trading, as individuals are buying and selling assets with the expectation of value or profit.

Day Trading is a specific strategy within trading that involves buying and selling financial assets, such as stocks, bonds, or currencies, within the same trading day. The goal is to profit from small, short-term price fluctuations, with all positions typically closed before the market closes for the day.

• Example 1: An individual investor buys 500 shares of a technology company's stock at 10:00 AM, observing a slight dip in price. By 2:00 PM, the stock price has risen slightly, and they sell all 500 shares, making a small profit on the price difference within the same day. This rapid buy-and-sell cycle within hours is characteristic of day trading.

• Example 2: A professional currency trader uses specialized software to execute numerous trades involving different currency pairs throughout the day. They might buy Euros against the US Dollar in the morning and sell them back in the afternoon, repeating this process multiple times to capture small gains from intraday exchange rate movements. This continuous, same-day activity defines day trading in the foreign exchange market.

Secondary Trading refers to the buying and selling of financial securities (like stocks or bonds) that have already been issued by a company or government. These transactions occur between investors in the market, without the original issuer or the initial underwriter being directly involved in the exchange.

• Example 1: An individual investor decides to sell 100 shares of a well-established automotive company that they have owned for several years. Another investor, seeing potential in the company, purchases these shares through a stock exchange. This transaction is secondary trading because the automotive company itself is not involved in this particular sale; it's an exchange between two investors in the open market.

• Example 2: A large pension fund sells a block of government bonds to an insurance company. These bonds were originally issued by the government years ago. The trade between the pension fund and the insurance company is secondary trading because it involves existing securities changing hands between two institutional investors, not a new issuance by the government.

Short-Term Trading involves buying and selling financial assets with the intention of holding them for a relatively brief period—typically longer than a single day but usually less than a year—to profit from anticipated market price fluctuations.

• Example 1: An investor buys shares of a pharmaceutical company, anticipating that an upcoming announcement about a new drug trial, expected in the next few weeks, will cause the stock price to rise. They plan to sell the shares shortly after the announcement, regardless of the long-term prospects, to capture the immediate price surge. This strategy of holding for a few weeks to capitalize on a specific event is short-term trading.

• Example 2: A hedge fund purchases a significant amount of crude oil futures contracts, expecting that geopolitical tensions will cause oil prices to increase over the next two to three months. The fund intends to sell these contracts once the price has risen sufficiently, rather than holding them until expiration or for a longer-term investment. This focus on profiting from a medium-term market trend illustrates short-term trading.