What is share trading?
Shares, also known as stock or equities, is one of the most popular financial instruments. In simple terms, they represent ownership of a company that is listed on an exchange. When companies want to raise capital, they issue shares. Investors who believe that the company will expand further, and therefore appreciate in value, buy shares and own part of that company. The more shares you buy, the bigger part of the company you own.
The first time a company issues shares is called Initial Public Offering (IPO). IPOs tend to attract the interest of investors causing significant volatility. Buying shares during an IPO can be seen both as a risk and an opportunity.
To buy shares, investors need access to a stock exchange. The most well-known stock exchanges are the New York Stock Exchange (NYSE), NASDAQ and the London Stock Exchange (LSE). Buying actual shares through an exchange or a broker who provides access to an exchange comes with the cost of a commission.
What are dividends?
By owning shares, investors become shareholders, which means they are also entitled to the company’s earnings, known as dividends. Dividends refer to the investor’s share of the company’s profit. They are normally paid out twice a year and the amount depends both on the company’s growth and the proportion of the profits the company decides to pay back to the shareholders as opposed to the proportion they decide to re-invest.
What influences the prices of shares?
To assess how the price of a share will fluctuate, investors tend to look at the below key factors:
The most common indicator in evaluating shares is called Earning per Share (EPS). This represents the shareholder’s return on investment and is usually compared to expectations to give an idea of how well the company is doing.
Key actions that affect the lifecycle of a company and therefore its profitability include mergers and acquisitions, the issuing of more shares as well as the purchase or selling of shares by the company’s directors.
News & rumours
As with all markets, any type of news regarding managerial decisions, change of management, a new line of product or even a scandal can influence the share price substantially.
Investing in shares vs. trading share CFDs
Shares offer as many opportunities as there are entrepreneurs in the economy trying to build the next Amazon. However, investing in shares through an exchange not only involves commission, but it also restricts investors who want to take advantage of falling markets, as they cannot sell a share they have not previously bought.
That’s why trading share CFDs online has become a popular way for traders to participate in the exciting shares market. When trading shares online, you neither buy nor sell an actual share. What you do is speculate on the direction in which the price of a share will move, allowing you to profit both from long (buy) and short (sell) positions.