Page 34 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

Chapter 6:

Understanding Financial Markets

Understanding financial markets and how they work will be a constant education for
you, because they are constantly changing. With every new technology advance and
with every new geo political structure introduced into the marketplace, the markets will
adapt and change.

Prepare yourself to always be on the look-out for the latest developments in the
markets, since what is written on these pages will no doubt change as the months and
years go by.

Compared with the simplicity of the caveman days, in today’s world we have a variety of
new developments that did not exist until recently such as:

• Electronic markets that have replaced many open outcry pits
• Introduction of the Euro currency in 1999 replaced the existing currency of 15
other European countries at the time
• Decimalization in the US markets replaced fractions in 2000
• 24-hour trading for all markets is on the horizon
So, now in today’s world we have all these new and exciting developments, which
weren’t around in the year 1929. Who knows what we will have in another 80 years?
There may be a completely different financial landscape with a completely different
vocabulary to match.

If we go way back in the beginning, finance consisted primarily of a barter system.
There was a time when a farmer might give a few bushels of grain to a rancher up the
road in exchange for a cow. They each got something they needed and it was a fair
trade. They were trading commodities, which we still do today. The only difference is
that, today it’s not as literal as it was back then.

Now the trade generally takes place on paper, or through a fiber optic cable, as
opposed to physically handing over a living breathing mooing cow in exchange for some
bushels of grain.

Barter was essentially the beginning of the financial markets. There were trades being
made, and liquidity, or lack thereof existed just as it does in modern day markets. The
sophistication of today’s technology and computers and the many channels an order
goes through does not change the essence of it all.

34 | P a g e