Business and Personal Finance Dictionary

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• TRADING
  
  1. The activity of buying and selling financial instruments or commodities for profit. Individuals or entities may engage in trading either strictly on their own behalf or for current or future transactions with customers. Trading profits may come from market price changes but may also come from the spreads between bid and asked prices or from customer markups. Trading is distinct from investing, although trading activities are not always easy to distinguish from investing activities. In trading, the profit goal is almost always short term. Unlike trading, investing is generally longer term and may even include the intent to hold the instrument to maturity. A common misconception is that trading activities are speculative while investing activities are not. Trading may indeed include highly speculative transactions. However, trading may also include relatively low-risk transactions such as matched trading or arbitrage. Like investing, trading may involve either cash or derivative instruments. Trading transactions may involve cash and/or futures positions. 2. One of three defined categories established in FAS 115 for the classification of financial instruments held as assets on the books of an investor. Trading securities are those owned by investors engaged in trading activities including short-term speculation. Under FAS 115, trading assets must be reported at their market values. FAS 115 also includes provisions that restrict investors’ ability to transfer assets from the trading category to available-for-sale (AFS ) or held-to-maturity (HTM). Also see available-for-sale, FAS 115, and held-to-maturity .
  
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