What is trading?

• A. The buying and selling of different financial instruments in order to profit from capital gain.
• B. The process of arranging mergers and acquisitions.
• C. The assessment of credit risk in a portfolio.
• D. The issuance of new securities to the public.

Answer: (A)

Trading is the act of buying and selling financial instruments with the goal of profiting from price movements in the market over short-to-medium time horizons. It covers assets like stocks, bonds, currencies, and derivatives, and traders try to capture capital gains by predicting whether prices will rise or fall and by entering and exiting positions efficiently. This active buying and selling approach contrasts with other activities such as mergers and acquisitions, which focus on corporate deals; credit risk assessment, which evaluates the likelihood of default; or issuing new securities, which is about raising capital rather than trading existing assets. For example, buying a stock at 50 and selling it at 55 demonstrates the pursuit of a price move to generate a gain.