The Term Trading in a Business and Financial Context Explained

 

What is trading in business terms?

  Simply put, the term trading in business terms indicates a present and continuing action of some type of trade. It derives from the term ‘trade’ which is a concept that refers to the buying and selling of goods and services between buyers and sellers. Trade can also involve the exchange of goods and services between people, businesses, countries, corporations, and other entities. The term ‘trade’ has its roots in Middle English, a form of the English language used from the late eleventh century to the late fifteenth century. During this period, the term ‘trade’ was used to denote ‘path, track, course of action.’ The article’s object is to explain the following eight ways in which the term ‘trading’ is used in a business and financial context.

• Trading account
• Trading book
• Trading desk
• Trading halt
• Trading house
• Trading platform
• Trading strategy
• Trading session

 

🏆10 Best Forex Brokers in South Africa

What is a trading account?

A trading account refers to any investment account that traders use to buy and sell securities, such as shares, commodities, foreign exchange (forex), and cryptocurrencies, and to manage trades. The primary account for a day trader is also called a trading account. Primary accounts are commonly used by day traders to frequently buy and sell high volumes of securities or foreign currencies during day trading. The Financial Industry Regulatory Authority (FINRA) of the USA describes day trading as a type of trading where securities or assets are bought and sold within a single day. In addition, FINRA sets the following two requirements for a trader to be considered a day trader:

• The execution of at least four-day trades (buying or selling) over the period of a five-day week.
• Trading activities have to constitute more than 6 percent of the trader’s total trading activities during the same week.

Trading accounts superseded the open outcry system when electronic trading was introduced. The open outcry system required traders to verbally communicate with one another and be physically present on the trading floor of stock exchanges when buying or selling securities. Contrarily, trading accounts enable traders to, amongst others, trade shares, forex, and commodities, without being present on a trading floor. Also, securities held in electronic form, have replaced certificated securities, which are securities represented in physical paper form. In South Africa, day trading is regulated by the Financial Sector Conduct Authority (FSCA). Furthermore, to open a trading account as a day trader, a minimum deposit amount is required - usually between 100 and 200 US dollars.  

What is a trading book?

A trading book is a form of an accounting book or accounting ledger that comprises records of all tradeable financial instruments and assets currently held by a financial institution, such as a bank, or a brokerage. Assets and financial instruments that are actively traded include commodities, forex, equities, debt, and derivatives. Put differently, a trading book records all the investment activity made by a financial institution or brokerage. It also includes the history of purchasing and selling transactions concerning financial instruments and other assets. Typically, a separate trading book for each client is to be maintained by a portfolio manager, ensuring compliance of the trading book, and maintaining transparent records for each client. Trading books can cause severe losses inside a financial institution, due to extraordinary high degrees of leverage by a financial institution to grow the trading book. Hence, most financial institutions and broker firms employ complex risk standards in order to manage and mitigate the risk concerning their trading books. Advantages of a trading book are, amongst others, the following:

• It helps to mitigate investment risk by keeping accurate records of transactions and tracking the records.
• A trading book enables the planning of transactions, preventing unnecessary losses, and maximising profits.
• It helps to detect and prevent fraud.
• Previous trading activities can be viewed easily.
• It is regarded as a legal document and accepted as legal proof in a court of law.
• It enables the investor to effectively plan an investment.

 

What is a trading desk?

Simply put, a trading desk is a designated department with a physical location in a financial institution, such as a bank, where all activities associated with the buying and selling of securities like shares, foreign exchange, and bonds take place. Large brokerages and investment firms use trading desks to facilitate their own trade and to provide services to their clients. Services such as:

• Facilitate the trading of securities.
• Support clients in the structuring of financial products.
• Identify investment opportunities.

In return for services rendered, clients are charged a percentage of commission earned from the trading activities of clients.   Types of trading desks:

• Fixed-income trading desks trade in financial instruments that are bond-related, including government and corporate bonds. Clients earn a fixed income on bonds and bond-based instruments.
• Equity trading desks facilitate trading in equity (company shares) as well as trading in various exotic options, which are options contracts that differ from traditional options regarding payment structures, expiry dates, and strike prices.

• Commodity trading desks specialise in commodity products like agricultural commodities (such as grains, coffee, and livestock), precious metals (gold and platinum), and crude oil.

• Foreign exchange (forex) trading desks perform as market makers, enabling trading in currency pairs. In addition, forex trading desks are also involved in proprietary trading activities.

 

What is a trading halt?

A trading halt, also referred to as a stock halt, occurs when the trading of a particular security is temporarily stopped. A trading halt can apply to a specific security or securities at one exchange or across various exchanges. An entire exchange can also be temporarily halted. There are numerous reasons why a trading halt could occur. For instance:

• Correction of a situation of excess volatility - excess of buy or sell orders for a specific company’s shares.
• Anticipation of news announcements (negative or positive) about a company’s products or services.
• Major corporate proceedings like a merger or acquisition.

• A restructuring process of a company.

• Complications concerning the financial health of a company, such as imminent bankruptcy proceedings, and dramatic shortfalls in earnings.

• Regulatory concerns may affect a company’s business abilities, putting the ‘going concern’ accounting principle at risk.

Trading halts could be disruptive at times. Although, it is actually a process that aims to protect investors, levelling the playing field between informed investors and those who are not aware of the facts or who do not understand the situation that causes the trading halt. Furthermore, trading halts prevent potential illegal transactions and give other exchanges the opportunity the become aware of the news and halt trading of a specific company’s shares on their own exchanges.  

Example of a recent trading halt on the Johannesburg Stock Exchange (JSE)

The opening of the JSE was delayed for hours on Wednesday, 17 August 2026. This was due to the effect of the share swap deal of Naspers Ltd. with Prosus NV. Bloomberg reported on 18 August that the JSE ‘struggled to process record transactions in the previous session as investors adjusted their holdings in the local market giant Naspers Ltd.’ The share swap deal between Naspers and Prosus affected extraordinary trading volumes of Naspers shares because money managers were obliged to sell Naspers shares and buy Prosus shares to keep their portfolios in line with the new weighting requirements.  

What is a trading house?

A trading house is a business that facilitates trade between its home country and foreign countries. Trading houses employ their infrastructure and extensive, sophisticated networks to facilitate foreign trade, eliminating trading barriers that prevent trading in foreign markets. Put in other words, trading houses perform as agents for sellers or buyers in their home countries and in foreign countries. Advantages of trading houses are, inter alia, as follows:

• Enable small local businesses

Trading houses have the capacity, knowledge, and expertise to help small local businesses with limited resources, or lack of import and export capacity, to get a foothold in the challenging international market.

• Hedge currency risk

Trading houses are continually importing and exporting products, involving currencies of numerous countries. Hence, they are equipped to manage and hedge currency risks in order to prevent exposure to unfavourable currency fluctuations. A currency forward contract is a typical hedging technique in forex trading. For instance, a trading house in the USA that is required to pay certain imported goods in euros in the nearby future may use a currency forward contract to secure the current EUR/USD exchange rate.

• International foothold and presence

Extensive networks of contacts in international markets enable trading houses to enjoy a presence in foreign countries, serving as a basis for favourable deals and opening doors for new clients in international markets.

• Economies of scale

Trading houses have the capacity to buy and sell goods in large quantities, allowing them to cost advantages. For example, they can negotiate considerable discounts from suppliers and manufacturers. Transportation costs associated with imported goods can also be reduced when goods are transported in bulk.  

What is a trading platform?

A trading platform is a computer software programme that allows traders and investors to buy and sell financial products, such as securities, commodities, and forex on the internet. A trading platform is provided by an online broker. There are two types of platforms:

• Proprietary trading platforms, commonly called prop platforms, are customised platforms built by large broker firms according to their specific trading needs and style.

• Commercial trading platforms have day traders and retail investors as targets. These platforms are easy to use, comprising features like charts, research information, and news feeds.

When considering which trading platform to choose, traders and investors should weigh up both the required fees and the features provided. It is important because the trading strategies and styles of investors and traders differ. Hence different features are needed. In addition, a trader who executes scalping as a trading strategy will prefer a platform with low fees. However, lower fees could mean fewer features and less research information.  

What is a trading strategy?

A trading strategy refers to a systematic and established plan that an investor or trader follows to trade in different financial markets, aiming to make a profit. A trading strategy, also referred to as a trading plan, comprises numerous factors and requirements. Such as:

• Technical indicators.
• Fundamental analysis.
• Time horizon.
• Financial needs (short-term and long-term).
• Level of risk tolerance.
• Tax implications.

Examples of trading strategies are:

• Day trading is a well-known trading strategy that requires that no trading positions should be kept open at the close of a day’s trading in order to prevent the increased cost and risk associated with medium and long-term trading.

• Swing trading refers to the execution of trades based on swings in shares, currencies, and commodities that occur over a period of days or weeks.

Choosing a trading strategy means finding an option that suits your trading style - a strategy that is in step with your risk tolerance, knowledge of the financial markets, and time available to trade.  

What is a trading session?

A trading session refers to the active and primary trading hours for a given security, commodity, and foreign exchange, or a given locale. Typically, different financial markets and exchanges have different trading hours. There are no trading sessions on public holidays or during weekends. Globally, there are three primary trading sessions, named after London, Tokyo, and New York - the major financial cities.

• The Tokyo session also referred to as the Asian session, is the first financial market to open on a business day. The Tokyo session stretches from 23:00 to 08:00 Greenwich Mean Time (GMT).
• The European session’s official trading hours are from 07:30 to 15:30 GMT.
• The New-York session also called the North American session, is dominated by the financial markets in the USA. Trading hours are 09:30 to 16:00 Eastern Standard Time (EST).

The Johannesburg Stock Exchange (JSE) is open for trading, Monday to Friday (public holidays excluded) from 09:00 to 17:00 South African Standard Time (GMT +02:00). The forex market has no physical location. It is open somewhere in the world between 19:00 GMT on a Sunday and 17:00 GMT on a Friday.

Recommended brokers