How To Trade Shares
Welcome to Trading Brokers step by step guide to trading shares online. Here you will find an easy to understand explanation of shares trading. This includes how to trade shares online, what you need to trade shares and how to open a trading account with a broker so that you can start trading shares online today.
People often interchange the terms stocks and shares which can cause a confusion between them both. However, there are some key differences between the two terms. If you are curious to learn more about shares and how to trade shares online, this guide can help you along your journey.
What are stocks?
In order to correctly understand shares, it is important to first understand stocks. Stocks are issued by a company when they want to raise capital, usually for expanding their operations.
These stocks are a type of security that gives investors an ownership in the company. Investors will usually buy stocks in order to try and profit from an increase in the valuation of the stock.
When you buy one or several stocks in a company, you are not lending the company money and expecting them to pay it back to you with interest. Instead, you are buying a piece of ownership in the company, with an interest in the company being successful which can increase the value of your stocks.
If the company does well, you can sell your stock at a higher price than that at which you bought it and make a profit. If the company does not do so well and you wish to sell your stocks at a lower price than you purchased it, you would suffer a loss.
Some stocks also pay dividends which is a benefit from earnings based on how many stocks are held by an investor. Investors can own stocks in multiple companies if they wish.
The stock market operates via a network of exchanges including The New York Stock Exchange, The NASDAQ Stock Exchange and The London Stock Exchange.
Stocks are divided up into shares which is the smallest denomination of a company’s stock. Each share indicates a portion of ownership in a particular company. Thus, each share of stock is equal to a piece of one particular company’s ownership.
For example, if a company is worth $100 million, and there are 50 million shares, then each share is worth $2 (usually listed as 200c). Those shares can and do go up and down in value for various reasons, primarily due to supply and demand.
Usually when someone states that they own some shares in a company, they are referring to the stocks they own which amount to a certain percentage of the total stocks in the company. On the other hand, if someone states that they own stocks, they may be referring to an individual company or their portfolio as a whole.
Large companies can have millions of shares which means that even owning tens of thousands can still amount to a small share in the company of less than 1%. If an individual or entity holds more than 10% of a company’s stock, they are defined by the Securities and Exchange Commission (SEC) as a principal stockholder.
While some people use the terms stocks and shares interchangeably, there are some key differences between them.
Someone who owns stocks may hold ownership in one or more companies; someone who owns shares in a company has ownership of just one particular company.
The term shares could refer to holding shares in limited partnerships, exchange-traded funds, real estate investment trusts and mutual funds. In a mutual fund, you own shares, but not actual whole stocks. You own a portion or shares of the stock held in total by the mutual fund. Stocks on the other hand, refer specifically to corporate equities, a type of security traded on a stock exchange.
Someone who owns stocks may own two different stocks of different values. However, someone who owns shares in a particular company may own multiple shares of the same or equal value. Stocks are usually always fully paid up but shares can be either fully paid up or partially paid up.
Stocks can be issued at any time by a company or companies needing to raise capital whereas shares cannot. Shares tend to have a nominal value, such as $5 a share, whilst stocks have no nominal value. Shares also have a definite number known as a distinctive number, whereas a stock does not.
Companies that wish to raise capital will list their shares through the process known as an initial public offering (IPO). Once their stock is public, individual investors and institutions can start to trade the shares.
Traders who believe that a company will see strong growth may consider buying shares, ideally for a low price so that they can sell shares at a later date for a profit. On the contrary, traders who think that a company could be facing trouble may look to sell shares, aiming to make a profit if the shares dropped in value. If the trader is wrong and the shares move in the opposite direction to which they anticipated, this will lead to a loss.
In order to trade shares online you will need access to the stock exchange through a broker. They will provide you with a trading platform to connect to the exchange where you can buy and sell shares. You can see a selection of our best stock brokers below who you can open a trading account with.
ASIC, BVI, CBI, FFAJ, FSA, FSCA
Min $100 Deposit
FCA, CFTC, NFA, BaFin, FINMA, ASIC, FMA, MAS, FSA, FSCA, DFSA, JFSA, METI, MAFF
Min $250 Deposit
ASIC, FCA, DFSA, SCB, CySEC, BaFin
Min $200 Deposit
ASIC, CySEC, IFSC
Min $5 Deposit
Initially, a company will set a price at which it will list on a stock exchange, this is known as its IPO price. After that, fluctuations in the share price are caused by changes in the supply of and demand for the stock.
Individuals will always be able to buy and sell shares trading on the stock market. However, the price is determined by the supply and demand from prospective buyers and sellers at any particular time. When there is high demand and many buyers, it can drive up the share price. If there is low demand and more sellers, the share price can decline.
Supply factors that affect share prices include company share issues, share buybacks and sellers. Share prices are likely to come down when supply is greater than demand, and when more investors start to sell.
Demand factors that can affect share prices include company news and performance, economic factors, industry trends, market sentiment and unexpected events such as natural disasters. Demand gives shares value. If there is no demand for a company’s shares, they will have no value.
There is always a limited supply of a company’s stock. A company can make the decision to issue more shares, or buy back shares from investors if they wish to reduce supply. However, the number of shares that are in circulation is always known.
Investors generally buy shares outright when they are looking to hold shares for a sustained period of time to hopefully sell for a profit at a later date should they increase in price. A common phrase used when trading shares is to “buy low and sell high”. Investors can take positions over the long term, attempting to profit from share price changes as well as dividend payments.
Traders use derivative products that take their value from the price of the underlying market. These do not require that traders actually physically own the shares. This means that traders can speculate on rising and falling share prices but do not have shareholder rights or receive dividends.
In comparison to investors, traders will tend to buy and sell shares over the short to medium term and focus more on smaller market movements. This is usually done via share CFDs (contract for differences).
A CFD is a contract to between two parties to pay the difference between the value of the current price and future price. Share CFDs have become popular in recent times, primarily due to the increase in online trading brokers that have given investors access to quickly and easily buy and sell shares online.
For example, you think Apple shares are going to appreciate and you want to open a long position to profit from this opportunity. You purchase 100 CFDs on Apple shares at $160, so the total value of the trade will be $16,000. If Apple appreciated to $170, you make $10 per share, which is a $1000 profit.
If you have taken the time to read through the above, you should hopefully have an understanding of what shares are, how they differentiate between stocks and how to trade shares online. Here is a summary of the key steps:
Trading shares online carries an element of risk and can take more time than other forms of investing. You will need to research shares, manage your shares, follow market news and decide how to react to it. It is important to understand the risks and dedication that comes with trading shares online.
2. Educate yourself
Before trading shares, it is imperative to learn as much as possible about investing and trading in shares. Any mistake could prove to be costly. There is an abundance of free educational materials provided by many online brokers that can help you to improve your trading skills and knowledge.
Most trading brokerages will also provide a free demo trading account so that you can practice trading shares online with virtual funds in order to familiarise yourself with the trading platforms and practice your trading strategies until you feel confident enough to open a real trading account.
In order to trade shares online, you will need a broker account and trading platform to execute your trade positions through to the stock market. When choosing a broker, there are a few important things to consider such as regulation, commission fees, platforms, tools, education, funding options and customer support.
If you do not have the time to research brokers, you can see a list of our best brokers that we have already prepared to help traders. If you would like to know more, you can also view our detailed guide on how to choose a trading broker.
If you have made it this far then you may be ready to start trading shares online! The next step is to research the different companies to discover which shares you have an interest in trading. Perhaps there is a particular industry, product or service that is already of interest to you. Many brokers will allow you to filter shares according to various criteria in order to narrow down your search if need be.
Many traders will begin by analysing different companies, studying public information such as finances, earnings and reports from professional analysts. The best brokers should have this information conveniently displayed for you within their trading platform.
Some of the most important factors that can help determine your success trading shares can be the trading plan and discipline. It is important to have a solid trading plan personalised to your own needs that includes the money management and trading strategy that you will use. Most experts and professional traders would try to not let negative emotions such as fear, anger and greed affect their trading strategy.
Once you know what shares you want to trade online, you can analyse them to help decide if and when you will place your trades. After placing a shares trade, you will need to keep track of how it performs and manage it according to your share trading plan. Some investors will keep hold of shares for the long-term, whereas traders may buy and sell shares on a daily basis.
Shares trading is a popular choice for active investors who would like to trade some of the biggest global brands. The wide range of stocks means that there is ample opportunity to look for trades. Shares trading can be suitable for scalping, day trading and swing trading. Traders who would usually trade forex, trade indices, trade commodities, trade cryptocurrency, may look to diversify their portfolio.
However, it is important to understand the significant risks involved with trading shares online, especially when using leveraged positions. Most experts would suggest trading on a demo account with virtual funds to begin with.
This can be a useful way to familiarise yourself with how to trade shares and using trading platforms whilst allowing you to practice your trading strategies until you feel confident and produce consistent results. Most stock brokers provide unlimited demo accounts free of charge.
If you are still unsure which broker is the best for you to trade shares online with then you can use our free online broker comparison tool to quickly compare brokers based on regulations, minimum deposit, leverage, spreads, commissions, funding options and more. You can also read our broker reviews and choose from our best stock brokers, best trading platforms, best social trading platforms and best trading apps. If you would like to look for the best trading brokers in a particular country, we have pages dedicated to our best brokers USA, best brokers UK, best brokers Australia, best brokers South Africa and best brokers Canada.
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