The Various Motives of Trading


Why does any trading take place? Or, what in reality, drives trading to happen? Here are the motives behind trading. Trading is broadly governed by three motives namely- financial management, speculation & brokerage. A closer look at these aspects suggests us the following:

  1. Financial Management- The management can order traders to close transactions that are driven by two motives-operational or strategic.
  2. Speculation- Traders can have a speculation mandate to realise profits. A speculative long position is created by buying the financial products (assets) if a trader expects the prices to go up in future. This enables the trader to sell assets for profits in the future. Opposite to it is the speculative short position, in which a trader sells the assets in the expectation of lower prices in the future. However, the actual price developments can be opposite, generating losses.
  3. Brokerage- It is a motive to perform trading for clients who do not have a direct access to the financial markets. This generates spread profits for the trader. They can be described as the difference between the buy and sell prices. As the product prices change fast and transaction volumes are high, mistakes can generate substantial losses. Therefore, trading done in this way must be closely monitored and managed. This requires expensive staff and infrastructure.

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