Trading is decision-making

Trading is an activity whereby orders are executed; it involves buying and selling. A trader is the person who negotiates and/or submits orders to transact. Hence, a trader closes deals.

Trading concerns decision-making in the sense that each buying or selling transaction starts with analysis and ends with a decision. Each decision-making process ends up with either a decision to buy or sell, or to do nothing. This process is repeated over-and-over again, ongoing. It takes place on a constant basis. Once it is decided to do nothing, the sequence starts all over again. Maybe somewhat later it has become time to transact. Besides, when a transaction has been concluded, the next question pops up: Do I keep the position as it is, or do I liquidate it? Although, actually, a third possibility should be considered, namely, to keep the position, while enlarging it volume-wise.

Once the desire or need to transact has become clear, a trader will wonder: What is the best time to execute the order (now or later)? Is it wise to transact in a bilateral way, in the OTC market, or is an exchange platform preferred? Is it wise to transact the entire volume at once, or is it better to divide it into smaller portions? How to negotiate? What is the best way to execute the order? What type of order is most helpful? What is the maximum buying or minimum selling price? Anyhow, deal-making is preferred to take place at the most optimal price. Buying at lowest possible prices and selling at the highest possible prices leads to the optimisation of financial results.

To make sure that market participants come together and execute deals with each other, they must inform each other about their preferences. Questions have to be answered: What product do you want to transact? Are you willing to buy or to sell? How much? At what price level? The exchange of this kind of information is done by means of orders, digitally or verbally. An order is an instruction from a market participant, which contains the mentioned relevant information. On a trading venue, like an exchange, market participants show their interest and criteria by (electronically) submitting their orders to the market. As soon as an order to buy and an order to sell (opposite interest) match (price-wise and for a certain volume), a deal is closed. Hence, the order is executed, and the transaction is concluded.