What Is Trading?

Trading in One Sentence

Trading is the act of buying a financial instrument and later selling it, or selling first and later buying back, with the goal of profiting from the price difference. That is the complete definition. Everything else — the platforms, the strategies, the jargon — is detail built on top of that one idea.

What separates trading from casual participation in markets is the element of deliberate timing. A trader is making a specific judgement: that the price of something will move in a particular direction over a particular timeframe. That judgement can be informed by technical analysis, fundamental data, or a systematic set of rules. What it cannot be, if it is to generate consistent results, is intuition alone.

The phrase "short to medium-term" matters here. Trading operates on different time horizons from investing. A day trader might hold a position for twelve minutes. A swing trader might hold for five days. A position trader might hold for six weeks. All three are traders rather than investors, because their aim is to profit from the move itself rather than from long-term ownership of the asset.

The Markets You Can Actually Trade

Most retail traders access five broad categories of market. Each behaves differently, has different drivers, and suits different approaches.

Forex (foreign exchange) is the largest financial market in the world, where one currency is exchanged for another. GBP/USD, EUR/GBP, and USD/JPY are among the most commonly traded pairs for UK traders. The market runs 24 hours a day, five days a week. See What Is Forex? for a full introduction.

Stocks represent ownership stakes in individual companies. UK traders can trade shares directly through ISAs and dealing accounts, or speculate on price movements through CFDs and spread betting without owning the underlying shares.

Indices track the collective performance of a group of stocks. The FTSE 100 measures the 100 largest companies on the London Stock Exchange. The S&P 500 tracks 500 large US companies. Traders use indices to express a view on an entire economy or sector rather than a single company. See What Are Indices?.

Commodities include raw materials: gold, oil, natural gas, and agricultural products like wheat and coffee. Most retail traders access commodity markets through CFDs or spread betting rather than futures contracts or physical delivery. See What Are Commodities?.

Cryptocurrency trades around the clock on global exchanges. Bitcoin and Ethereum are the most traded by volume. Crypto markets are significantly more volatile than traditional markets, which amplifies both risk and potential return.

How a Trade Actually Works, Step by Step

The mechanics of a trade are simpler than they appear once you strip out the terminology.

You open a trading platform, identify an instrument you want to trade, and decide whether you believe the price will go up or down. If you think it will rise, you buy, which traders call going "long." If you think it will fall, you can sell first and buy back later, which traders call going "short." When you are ready to exit, you close the position by doing the opposite of what you opened with.

Here is a straightforward worked example using GBP/USD:

You believe the pound will strengthen against the dollar over the next two days. GBP/USD is currently priced at 1.2700. You open a long position for £5 per point of movement. Over the next day, the rate moves to 1.2850. That is a 150-point move in your favour.

Your profit: 150 points multiplied by £5 per point equals £750.

If the price had instead moved to 1.2600, a 100-point move against you, your loss would be 100 multiplied by £5, which is £500. This is why defining your exit point before you enter — your stop loss — is not optional. It is the mechanism that controls how much you risk on any single trade.

Trading Styles at a Glance

There is no single correct way to trade. Different styles suit different temperaments, schedules, and capital levels. The three main approaches for retail traders are:

Day trading demands the most time and discipline. Positions are opened and closed within the same session. There is no overnight exposure, but there is also no time for a trade to play out if the initial timing is imperfect.

Swing trading suits people who cannot watch charts during the day. The aim is to capture multi-day moves rather than intraday fluctuations. This style typically requires less screen time but still demands a defined strategy and exit plan.

Position trading is the closest to investing in its time horizon, but it is still trading: the aim is to profit from a directional move over weeks rather than years, and positions are actively managed with stops rather than held passively.

The Drawdown curriculum is structured to teach these approaches in sequence, starting with the foundational concepts that apply to all three before introducing style-specific methods.

What You Actually Need to Start

Trading requires four things, and you need all four of them before you risk real money.

A broker account. You cannot access financial markets without a regulated intermediary. In the UK, this means using a broker authorised by the Financial Conduct Authority. See What Is a Broker? for what to look for. The broker provides your trading platform, executes your orders, and holds your funds.

Capital. You need money to trade with. The amount matters less than what you do with it, but you need enough to apply proper position sizing without every trade consuming a disproportionate slice of your account. See How Much Money Do You Need to Start Trading? for an honest answer to this question.

A plan. A trading plan defines what you trade, when you enter, when you exit, and how much you risk per trade. Without one, you are reacting to the market rather than executing a strategy. Reactions tend to be expensive.

Risk management. This is not a separate concept from trading — it is the centre of it. Knowing your maximum risk per trade (most disciplined traders use one to two per cent of account capital), using stop losses consistently, and sizing positions correctly are the practices that separate traders who last from traders who do not.

Is Trading Risky?

Yes. This is worth saying plainly rather than burying in small print.

The majority of retail trading accounts lose money. This is a documented fact, not a warning invented by regulators to sound cautious. Brokers regulated in the UK are required to publish data on the percentage of retail client accounts that lose money when trading CFDs, and the figures are consistently high across the industry.

The reasons are not mysterious. Most new traders start with insufficient education, inadequate capital, no written plan, and no systematic approach to risk. They treat trading as a source of fast income rather than a skill that requires development over time. The results are predictable.

This is not an argument against trading. It is an argument for treating it seriously. Traders who approach it with structured learning, realistic expectations, a tested strategy, and strict risk management operate in a fundamentally different way from those who do not. The gap in outcomes reflects the gap in approach.

Drawdown exists because we believe good-quality trading education, presented honestly, changes outcomes. That is why this section exists: to give you the foundational understanding before you put capital at risk, rather than after.

The next step, if you want to build that foundation properly, is Phase 1 of the Drawdown curriculum. It is free to start and covers the concepts every trader needs before they open a live account.