What Are Shares?

Stocks are the shares into which ownership of the company is divided. Those who own stocks are called stockholders or shareholders. The ownership of shares entitles stockholders to a fraction of the company's assets and earnings (proportional to the number of shares owned). Stocks are usually traded in stock markets.

Companies go public and issue stocks in order to raise money to invest in their business and help it grow. Investors, on the other hand, buy stocks to try to make money and diversify their investments. Stock prices fluctuate, making the value of the company either increase or decrease.

Share trading involves buying and selling shares and other securities through a stock exchange or over the counter (OTC), in return for a fee or commission.

In order to trade shares, individual investors usually turn to brokers (nowadays it’s often an online broker), who execute the trades on their behalf.

Stock CFDs, as opposed to regular stocks, do not give you ownership of shares. Instead, they are a way of speculating on the future direction of the underlying share price. Contracts for difference allow you to settle for the price difference between the open and close rates. Therefore, CFD traders are neither entitled to ownership or voting rights.

Both contracts for difference and share trading offer ways to take advantage of price movements in financial markets, and both can form part of your portfolio.

Word cloud with popular stock terms.

Stock Markets

Stocks are usually traded in stock exchanges, which provide a marketplace for buying and selling stocks. Stock exchanges track the supply and demand for the stocks of every corporation, from which the price of the particular shares are derived. These are the largest stock exchanges and their market capitalisation as of May 2019:

  • New York Stock Exchange - 23.21 trillion U.S. dollars.
  • NASDAQ Stock Exchange - 11.22 trillion U.S. dollars.
  • Tokyo Stock Exchange - 5.61 trillion U.S. dollars.
  • Shanghai Stock Exchange - 5.01 trillion U.S. dollars.
  • Hong Kong Stock Exchange - 4.31 trillion U.S. dollars.
  • Euronext - 4.27 trillion U.S. dollars.
  • London Stock Exchange - 3.97 trillion U.S. dollars.
  • Shenzhen Stock Exchange - 3.36 trillion U.S. dollars.
  • Toronto Stock Exchange - 2.22 trillion U.S. dollars.
  • Bombay Stock Exchange - 2.18 trillion U.S. dollars.

Each exchange has its own list of requirements that corporations must adhere to in order to be listed there. The requirements are usually related to number of shares, market capitalisation and earnings over the past few years.

In order to choose where to list, companies take various factors into account, such as:

  • Location of the corporation and the exchange;
  • Type of exchange;
  • Listing and compliance costs; and
  • Accounting policies to be followed.

The exchange where the stock is listed affects the trading hours of the particular stock. Most exchanges have a fixed schedule with particular opening and closing times, adapted to the local time. Some markets offer pre-market and after-hours trading as well.

Supply and Demand

Share prices are determined by supply and demand. As the terms suggest, supply refers to the availability of the particular share, and demand is the desire for it. Low supply and high demand raise the price of a share, while high supply and low demand lower it.

Important Terms Used in Stock Trading

  • Annual Report - Report that contains information about the company's management and financial situation.
  • Ask - The price at which a seller is looking to sell his shares.
  • Bear Market - Refers to the stock market being in a span of falling prices.
  • Bid - The price that a buyer is willing to pay for a stock.
  • Broker - Person who arranges transactions (buys of sell) in your name for a fee.
  • Bull Market - Refers to the stock market being in a span of rising prices.
  • Dividend - A portion of the earnings which is paid periodically by a corporation to its shareholders.
  • Earnings Release - Quarterly statement that details the corporation's profits or losses.
  • Exchange - The venue where trades take place.
  • Initial Public Offering (IPO) - The first stock offering of a company to the public.
  • Liquidity - Represents volumes available to buy or sell a stock.
  • Portfolio - Collection of assets that a particular investor owns.
  • Sector - Groups of stocks that are in the same industry.
  • Spread - The difference between the buy and sell prices of a particular stock.
  • Symbol - An abbreviation (usually one to four characters) that represents a particular stock in the market.
  • Volatility - The speed at which the asset moves in any direction. The bigger and faster the stock swings, the more volatile - and riskier - it is.
  • Volume - The amount of shares of a company traded in a particular time period.

How Can you Trade Stocks CFDs?

Plus500 offers an alternative way to trade Stocks, through Contracts for Difference (CFDs). This gives traders the ability to use leverage to speculate on price movements of leading companies without actually having to invest large sums in the underlying security. This will amplify any profits, but it also means that losses are amplified. With some CFD providers this may involve losing more than your initial deposit. However, inline with the FCA requirement for all regulated CFD trading companies, Plus500 offers negative balance protection, which means that the maximum sum you risk at any one time is your account balance.

With CFD stock trading you can either open a BUY position or a SELL position, depending on whether you think the stock price will rise or fall. This gives you the possibility to profit on both rising or falling markets. However, it must be remembered that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

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