29/01/2025

What Is Trading and How Does It Work?

Trading refers to the process of buying and selling financial instruments, such as stocks, currencies, futures, and cryptocurrencies to make a profit.

The ATAS platform was built by traders for traders, offering unique tools to navigate the financial markets effectively. In this article, we will explain the basics of trading to help you get a solid grasp of this exciting but often challenging field. We will provide real trade examples to make everything as clear as possible.

For more experienced traders, this is an excellent opportunity to refresh their knowledge and sharpen their understanding of key concepts in financial markets.

You will learn:

What Is Trading?
Popular Volume Indicators: Vertical and Horizontal
Advanced Tools: OBV, Delta, Footprints, VWAP, DOM Levels
How to Interpret Volume Indicators: Logic and Signals
Trading Strategies: Reversal and Breakout
How to Learn Trading?
FAQs and Conclusion: Pros and Cons of Volume Indicators

Start using ATAS for free with no time limits! Or activate the advanced tariff right now to access the full range of functionality.

To try ATAS free of charge

In a broad sense, trading refers to any activity involving buying and selling. However, in professional contexts, trading typically refers to stock market activities.

The nuances of the term:

At its core, trading can describe almost any buying and selling activity. For example:

purchasing goods in bulk and reselling them at retail prices for profit, including transporting them over long distances;
selling personal items after replacing or upgrading them.

However, in modern professional usage, the term trading most commonly refers to the buying and selling of financial assets on stock exchanges rather than retail or conventional markets.

Stock market trading shares certain characteristics with traditional commerce but has fundamental differences.

Similarities Between Trading and Traditional Commerce:

Profitability. Both stock market trading and traditional commerce share the fundamental objective of generating income from the price difference between buying and selling.
Supply and demand dynamics. In both cases, the price of a good or financial asset is determined by the balance between buyers and sellers.
Market analysis. Success in both fields requires the ability to analyze market conditions and make informed decisions.

Key Differences:

Transaction speed. Financial market transactions occur almost instantly, particularly in strategies like scalping. In contrast, traditional commerce often involves a slower process, requiring time to find suitable buyers.
Liquidity. For example, the global annual trade volume of apples is approximately $6–8 billion, whereas the average daily trading volume of Apple Inc.’s stock reaches $20 billion.
Volatility. Stock prices can experience significant fluctuations within a single trading day, whereas the price of a product in a traditional market typically remains stable over time.
Scale. Stock trading enables transactions across continents, such as purchasing an asset from a trader in Asia and selling it to another in America.
Level of organization. Stock trading (less so with cryptocurrencies) is highly regulated, and exchange-traded assets have clear and detailed specifications.
Knowledge and tools. Stock market trading involves specialized tools and analytics (e.g., volume indicators or footprint patterns), while traditional commerce relies on knowledge specific to the product being sold.
Risk. Trading involves significantly higher risks compared to traditional commerce.
Strategies. Trading provides a wider range of strategies. For instance, financial instruments can be used not only for profit generation but also for hedging risks associated with other assets.

When it comes to trading stocks and futures on traditional assets, stock market trading is typically done through brokers on organized or over-the-counter exchanges.

Broker Functions

To trade on exchanges like CME or NYSE, you need to open a brokerage account. Brokers make money by charging fees on client transactions and offering additional services, such as:

✓ Intermediation. Brokers provide access to stock markets, submitting traders’ orders to the exchange, where they are executed.

✓ Leverage. Brokers may offer borrowed funds to increase trade volumes.

✓ Educational resources. Brokers often provide analytics, courses, and consultations for beginners.

✓ Additional tools. Brokers may offer trading software, indicators, personal account managers, tax agent services, and more.

For cryptocurrency trading, it is sufficient to open and verify an account on a cryptocurrency exchange. Unlike traditional trading, cryptocurrency trading operates 24/7 and does not require a broker.

Exchange Functions

An exchange is a structured platform where financial assets like stocks, futures, and other instruments are traded between market participants.

Trade management. The exchange regulates trading schedules, defines asset specifications, and operates the algorithms that match buy and sell orders.
Regulation. It ensures compliance with trading rules, maintains transaction records, and protects ownership rights of market participants.
Guarantees. The exchange provides reliability and facilitates trade execution through clearinghouses, reducing risks for participants.

Learn more: Exchange Algorithms: How Orders Are Placed

Let’s examine how trading works in practice.

Suppose a trader reads an article about the “Mini-POC Test” strategy. They open a demo account on the ATAS platform and start monitoring price movements to identify potential trades. Two examples of such trades are shown below on a 15-minute chart of the E-mini S&P 500 futures (ES).

The first trade was initiated as a long. As the market climbed toward peak A, a mini-POC (Support) formed around the 6070 level. The trader waited for a pullback, confirmed the setup on a 1-minute chart, and opened a long position (1) near the 6070 level, targeting (2) the high-volume area around 6097. This trade resulted in a profit of $1,462.

The second trade was initiated as a short. On the following day, as the market declined toward the low at point B, a mini-POC (Resistance) formed near the 6033 level. The trader observed a short-term recovery, confirmed the setup on a 1-minute chart, and entered a short position (3) near the 6033 level. The target (4) was set at a high-volume area around 6004. This trade resulted in a profit of $1,450.

The Role of a Trader

A trader plays a critical role in market dynamics. Their primary responsibilities include interpreting data, analyzing market trends, formulating strategies, and making trading decisions.

The ultimate goal of a trader is to align with the right side of the market. This requires identifying profitable opportunities while effectively managing risks to minimize inevitable losses.
Trade execution and oversight. A key responsibility of a trader is the precise and timely execution of buy or sell orders. This process is integral to the effective implementation of their trading strategy.
Contributing to market liquidity. Traders significantly enhance market liquidity by driving active participation and contributing to the establishment of fair pricing. Collectively, they shape the forces of supply and demand, which fuels market activity.

A trader’s earnings can be seen as compensation for the risks they take when conducting trades on the exchange.

Современные финансовые рынки позволяют вести торговлю как базовыми активами, так и производными (деривативами) от них финансовыми инструментами.

An underlying asset

is a tradable instrument with intrinsic value based on its real-world significance.

Derivatives

are financial instruments whose value is tied to an underlying asset. They are designed to make trading more flexible and accessible, flexible, and efficient, while also enhancing risk management capabilities.

Underlying Assets

Stocks. Securities that represent ownership in a company.
Bonds. Debt instruments that provide fixed income through interest payments.
Commodities. Natural resources and raw materials such as oil, gold, or grains.
Currencies (Forex). National currencies traded on the largest global over-the-counter market.
Stock indices. Average values of groups of assets, such as the S&P 500 or Nasdaq, reflecting overall market performance.
ETFs (Exchange-Traded Funds). Diversified collections of assets, such as stocks, bonds, or commodities, that trade like individual stocks on an exchange.

Learn more:

Derivative Assets

Futures. Contracts to buy or sell an underlying asset at a fixed price on a future date.
CFDs (Contracts for Difference). Instruments that enable traders to speculate on price movements of assets without owning them.
Options. Agreements that provide the right (but not the obligation) to buy or sell an underlying asset at a specified price in the future. A Call Option grants the right to buy, while a Put Option grants the right to sell.

Learn more:

Trading styles are categorized based on the duration of holding a position:

✓ Scalping
✓ Intraday Trading
✓ Swing Trading
✓ Position Trading

Day Trading

Also known as intraday trading, this style involves opening and closing all positions within the same trading day. Simply put, a day trader ends their workday with no open positions, meaning they are unaffected by overnight market movements.

Example. During the European session, a trader noticed a protrusion (1) on the market profile chart forming on the way to peak A.

The trader waited for a test and received confirmation in the form of a spike (2) in negative delta—a signal of a local selling climax. They entered a long position with a target near the high at level A, earning a profit of $950 from one lot.

Learn more:

Scalping

Scalping is a trading style focused on profiting from small price movements over minutes or even seconds. Scalpers are often likened to video gamers or fighter pilots due to the quick reflexes and rapid decision-making required.

Example. On a 10-second cluster chart of the ES, the trader noticed that after a surge in buying activity (1), the price started to struggle with upward momentum—a clear bearish signal. This was confirmed shortly after (2).

When the price failed to rise despite strong buying activity, the trader interpreted this as a signal to short. A distinct red cluster (3), with the target set near the previous low (4), served as the trigger for opening the position.

Learn more: What Is Scalping?

Swing Trading

Swing trading involves holding positions for a period ranging from a few days to several weeks.

Example. While analyzing the daily chart of gold futures, a swing trader identified a spike (1) in negative delta, which suggested a selling climax and a potential bullish reversal. This idea was reinforced by the candlestick closing far above its lows after testing both the lower boundary of a parallel channel and a key volume level (2).

The trader decided to open a long position and held it for approximately a week until the price reached a level of temporary equilibrium (3) near the psychological threshold of 2700.

Learn more: What Is Swing Trading?

Position Trading

Position trading refers to a long-term trading approach, with trades lasting from several months to several years. To explore more about position trading and other trading strategies, refer to the following articles:

Although both trading and investing involve engaging with financial markets, they differ in several key aspects.

Trading vs. Investing: Key Differences
	Trading	Investing
Goals	The main objective is to profit from short- or medium-term price fluctuations. Traders aim to take advantage of every market movement to maximize gains, whether prices are rising or falling.	The goal is to protect capital from inflation, grow wealth over the long term, and generate a stable passive income.
Ownership	Traders typically are not interested in owning assets. They speculate on price changes, often using derivatives like CFDs or futures, which do not require physical ownership but offer lower fees.	Investors usually own the assets they purchase. For example, buying shares gives them ownership in a company, along with rights to dividends and the ability to vote at shareholder meetings.
Analysis	Traders focus primarily on technical analysis, looking at charts, trade volumes, and various trading indicators.	Investors lean toward fundamental analysis, evaluating a company’s financial health, growth potential, and market conditions for long-term gains.
Risk	Trading carries higher risks, especially with margin trading and leverage. However, these tools can form the basis of effective strategies, as we explain in our article on market margin.	Investing tends to involve lower risks, as investors usually buy assets using their own funds and rely on steady economic growth, even during downturns.

Now that we have covered the differences between trading and investing, the next question is: which one should you pursue—trading or investing?

You do not have to choose just one. You can actively trade, for example, cryptocurrencies, while also investing part of your profits in long-term assets like blue-chip stocks.

Trading might be right for you if you:

Are comfortable making quick decisions in uncertain and competitive environments.
Are emotionally resilient, as losses are inevitable.
Have a strong sense of discipline and organization—you are ready to create a trading plan and follow it.
Technically skilled: you understand patterns, indicators, and footprint analysis, and you are proficient with professional trading software.
Have enough time and flexibility to track the market throughout the day and quickly execute trades when trading signals appear.

You can try different trading styles to determine which one aligns best with your goals and preferences.

Investing is much more straightforward: there is no real question of whether it is right for you—almost anyone can invest. With inflation constantly on the rise, regular investing becomes essential. It helps safeguard your hard-earned money from losing value, build a financial cushion for retirement, and grow your savings over the long term.

Ideally, by combining both trading and investing, you can earn income now while also setting yourself up for a more secure financial future.

We believe there are 4 key elements to succeed in trading:

Education. A solid understanding of market theory, price analysis (both technical and fundamental), and capital management.
Tools. A trading platform, modern indicators, various chart types, the ability to create custom algorithms and other tools.
Trading Strategy. A clear plan with defined entry and exit rules, along with effective risk management.
Discipline and the right mindset. These are crucial for success. Without them, even the best strategy will fall short.

Tip. Download the ATAS platform for free. It offers powerful market analysis tools, strategy development features, and a “Learn” section with educational materials to help beginners get started with trading.

Install and open the ATAS platform. In the top menu, you will find a link to the “Quick Start” guide, which walks beginners through the platform—from the first launch to placing your first trade.

Most trading platforms offer similar basic features, like a customizable price chart, where you can add indicators and key levels.

The difference with simpler, popular platforms (such as RSI or MACD) is that while they are easy to learn, gaining a real advantage with them is more difficult.

If you want to become a confident user of the professional ATAS platform, check out the series of reviews “Getting Acquainted With ATAS“:

Creating a trading strategy is similar to art.

on the one hand, everyone interprets price charts differently;
on the other hand, personal preferences play a big role, for example, how comfortable you are opening a buy position after a price increase.

That is why each trader’s trading plan can be unique, even if it is based on the same trading idea and uses the same indicator.

To effectively develop your own profitable strategy, use the ATAS Market Replay module. It is a simulator for traders that enables you to:

download trading history (including order book data) for stocks, futures, and cryptocurrencies from ATAS servers;
replay the history on your computer as if the trading is happening in real time;
add any of the available ATAS platform indicators to the chart;
choose dates, adjust speed, and make trades on a built-in Replay account with a trading journal analysis feature.

As a result, you can gain a clear understanding of:

✓ what trading is;
✓ whether trading is right for you;
✓ which trading style best suits your personal goals and preferences;
✓ which indicators, strategies, and markets work best for you.

Before you start trading with real money, it is a good idea to practice with a simulator to learn the basics and test strategies without any risk. Never trade with money you cannot afford to lose.

To try the simulator, download the ATAS platform for free, install, and launch it, and then:

Open a chart of a financial instrument.
Click on the Market Replay button in the main ATAS menu.
Activate the Replay mode (the icon should turn green).
Adjust settings (date and data type).
Start the replay and look for entry points using volume analysis tools. To open the trading panel, click Chart Trader in the bottom-right corner.

Example. The chart above shows a situation where a bull trap forms during the day (7) after a price drop (6). The trap could be used as a setup for entering a short trade.

What is trading in simple terms?

Trading is a business focused on buying and selling financial instruments like stocks, currencies, cryptocurrencies, and more. The trader’s goal is to actively grow their capital without taking excessive risks.

What sets trading apart is the need for analysis and decision-making based on a clear strategy. If someone considers themselves a trader but opens and closes positions randomly based on emotion, it is more like gambling than professional trading.

What are the different ways to trade?

You can trade manually, where you analyze the market and place your own orders, or use automated algorithms. There are also different styles: day trading, scalping, swing trading, and investing, all of which we have discussed in more detail above.

Which type of trading is best for beginners?

For beginners, it is best to take things slow to minimize risks. Swing trading is a good starting point since it does not require constant decision-making, giving you time to learn and apply your knowledge without too much pressure.

Using the ATAS Market Replay simulator can help beginners speed up their learning process.

What can you trade?

You can trade on stock markets, cryptocurrency markets, and commodity assets (oil or gold) in various forms — either by trading the underlying assets or derivatives (futures and options).

How much can you make trading with $100?

Theoretically, you could make any number, but realistically, a trader’s goal is around 5-10% per month. However, it is not just about capital growth—avoiding significant drawdowns is often more important.

Can you learn trading on your own?

Yes, it is possible through books, video lessons, and practice on demo accounts. However, you need to be prepared for a long learning process and a deep dive into understanding the nuances of the market.

Trading is a high-risk activity, but with the right approach, it can be a reliable source of income.

There are different types of trading, each with its own characteristics, so it is important to find the one that works best for you. Trading is a competitive field, and success often comes down to having an edge. The ATAS platform offers advanced volume analysis tools that can help you gain that edge.

Download ATAS. Once you install the platform, you will automatically get the free START plan, which includes cryptocurrency trading and basic features. You can use this plan for as long as you like before deciding to upgrade to a more advanced plan for additional ATAS tools. You can also activate the Free Trial at any time, giving you 14 days of full access to all the platform’s features. This trial allows you to explore the benefits of higher-tier plans and make a well-informed purchasing decision.

Do not miss the next article on our blog. Subscribe to our YouTube channel, follow us on Facebook, Instagram, Telegram or X, where we publish the latest ATAS news. Share life hacks and seek advice from other traders in the Telegram group @ATAS_Discussions or on Discord.

Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform.

What Is Trading and How Does It Work?

What Is Trading?

The nuances of the term:

Similarities Between Trading and Traditional Commerce:

Key Differences:

How Does Trading Work?

Broker Functions

Exchange Functions

Trading Examples

The Role of a Trader

What Assets and Markets Can You Trade?

Underlying Assets

Derivative Assets

Types of Trading Styles

Day Trading

Scalping

Swing Trading

Position Trading

Trading vs Investing

Who Trades and Who Invests?

How to Start Trading?

How to Use the Trading Platform?

How to Develop a Trading Strategy

How Should Beginners Start Trading?

FAQ

What is trading in simple terms?

What are the different ways to trade?

Which type of trading is best for beginners?

What can you trade?

How much can you make trading with $100?

Can you learn trading on your own?

Conclusion

Other blog articles: