Shares Trading: A Detailed Guide

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Category: Trading Guides | Author: Trading Brokers | Date: April 10, 2026

Shares trading, also known as stock trading or equity trading, is the process of buying and selling shares of publicly listed companies on stock exchanges. It is one of the most popular forms of investment, providing opportunities for both short-term traders and long-term investors to benefit from price fluctuations in the stock market. This article will provide a comprehensive look at shares trading, covering its basic principles, types of trading, strategies, risks, and how to get started.

If you are interested in trading shares, you can take a look at our best stock brokers for some options.

What Is Shares Trading?

Shares trading refers to the buying and selling of stocks (or shares) in companies listed on a stock exchange. When you buy shares, you are essentially purchasing a small ownership stake in a company. The value of shares can increase or decrease based on a variety of factors, such as the company’s performance, industry trends, economic conditions, and market sentiment.

The Role of Stock Exchanges

Stock exchanges play a crucial role in shares trading. They provide a platform for buyers and sellers to transact. Some of the most well-known stock exchanges include:

• New York Stock Exchange (NYSE): Located in the United States, it is one of the largest stock exchanges in the world by market capitalization.
• NASDAQ: Another major US exchange, known for its technology-based listings.
• London Stock Exchange (LSE): One of the oldest exchanges in the world, it facilitates the trading of shares in UK-listed companies.
• Johannesburg Stock Exchange (JSE): The primary stock exchange in South Africa, serving as a major hub for African investments.

How Shares Trading Works

When you buy a share, you are essentially entering into an agreement to own a portion of the company. In return, you are entitled to benefits such as dividends (a share of the company’s profits) and voting rights in company decisions (for certain types of shares).

Shares trading can be done in two primary ways:

1. Primary Market: This is where companies first issue shares to the public through Initial Public Offerings (IPOs). The primary market is the first place where shares are made available for trading.
2. Secondary Market: This is the market where existing shares are bought and sold. The secondary market is where most trading occurs, with shares being exchanged between investors, without involving the company itself.

The prices of shares fluctuate constantly during market hours due to the forces of supply and demand. When there are more buyers than sellers, share prices rise, and when there are more sellers than buyers, prices fall.

Types of Shares

Understanding the different types of shares is essential for anyone considering shares trading. The two main categories of shares are:

1. Ordinary Shares (Common Shares)

Ordinary shares are the most common type of shares and represent ownership in a company. Shareholders of ordinary shares are entitled to vote at shareholder meetings and receive dividends. However, they are last in line to receive any assets if the company goes bankrupt.

2. Preference Shares

Preference shares are a type of share that gives holders preferential treatment over ordinary shareholders when it comes to dividends and in the event of liquidation. However, preference shareholders usually do not have voting rights.

3. Bonus Shares

Bonus shares are additional shares given to existing shareholders, often issued as a reward for loyalty or based on the company’s accumulated profits. These shares do not require the shareholder to pay any extra money but can dilute the value of existing shares.

4. Redeemable Shares

Redeemable shares can be bought back by the company at a future date at a predetermined price. These shares are typically issued by companies as a way to raise capital without giving permanent ownership.

Shares Trading Strategies

Different traders use various strategies to try to profit from shares trading. Here are some common strategies:

1. Day Trading

Day trading involves buying and selling shares within the same trading day. Day traders capitalize on short-term price movements and use tools like technical analysis and charts to predict market trends. This strategy requires quick decision-making and a keen understanding of market movements.

2. Swing Trading

Swing trading is a medium-term strategy where traders hold shares for a few days or weeks, aiming to profit from price swings. Traders use both technical and fundamental analysis to identify potential entry and exit points.

3. Long-Term Investing

Long-term investing involves buying shares of companies with strong fundamentals and holding them for several years. Investors who adopt this strategy believe that, over time, the value of their shares will increase, along with any dividends paid out. Long-term investing is typically associated with a buy-and-hold approach, and it tends to be less risky than short-term trading strategies.

4. Value Investing

Value investing is a strategy where investors look for shares that they believe are undervalued compared to their intrinsic worth. These investors focus on companies with strong fundamentals but temporarily low stock prices. They purchase these shares with the expectation that the market will eventually recognize their true value, leading to price appreciation.

5. Growth Investing

Growth investors focus on companies with high potential for future growth, even if those companies are currently not profitable. These investors are willing to pay a premium for shares in companies that they believe will grow significantly over time.

6. Dividend Investing

Dividend investing focuses on companies that pay regular dividends. Investors who use this strategy aim to generate a consistent income stream through dividends while also benefiting from the potential appreciation of their shares.

Risks of Shares Trading

While shares trading can be profitable, it comes with certain risks that every trader and investor should be aware of:

1. Market Risk

Market risk is the risk of losing money due to overall market conditions, such as economic downturns, political instability, or natural disasters. Even the most well-established companies can see their stock prices decline during market-wide sell-offs.

2. Volatility Risk

Volatility risk refers to the risk of large price fluctuations in a stock’s price, which can lead to significant gains or losses. Stocks of smaller companies or those in emerging industries tend to have higher volatility.

3. Liquidity Risk

Liquidity risk is the risk of being unable to buy or sell shares at your desired price due to a lack of buyers or sellers. This is more common in stocks with low trading volumes.

4. Company-Specific Risk

This is the risk that a particular company’s performance will negatively affect its stock price. Factors such as poor management, competitive pressure, or a product recall can lead to significant losses for shareholders.

5. Inflation Risk

Inflation risk refers to the risk that the returns from shares trading will be eroded by inflation, reducing the purchasing power of your profits over time.

How to Start Shares Trading

Getting started with shares trading requires a few essential steps:

1. Choose a Trading Platform

To trade shares, you will need to open an account with a brokerage firm or a trading platform. These platforms provide you with the tools needed to buy and sell shares. Popular trading platforms include TD Ameritrade, E*TRADE, and in South Africa, platforms like EasyEquities or Standard Bank Online Trading.

2. Research and Analyze

Before making any trades, it’s important to research the companies whose shares you’re interested in. Study their financials, industry trends, and news that could impact their performance. Understanding both technical and fundamental analysis will improve your chances of making successful trades.

3. Develop a Trading Plan

A solid trading plan outlines your risk tolerance, investment goals, and strategies. It is important to set clear rules regarding when to buy and sell shares, how much capital to risk per trade, and your overall investment goals.

4. Risk Management

Effective risk management is key to shares trading. Use tools like stop-loss orders, diversify your portfolio, and never risk more than you can afford to lose. By managing your risks carefully, you can minimize losses and maximize potential gains.

5. Monitor Your Portfolio

Shares trading requires constant monitoring. Keep track of market news, earnings reports, and any other factors that might impact your investments. Regularly reviewing your portfolio allows you to make informed decisions about when to adjust your positions.

Conclusion

Shares trading is a dynamic and potentially lucrative way to invest in the financial markets. Whether you are a short-term trader looking to capitalize on market movements or a long-term investor seeking to build wealth over time, understanding the fundamentals of shares trading is crucial. By developing a solid strategy, managing risks effectively, and staying informed, you can maximize your chances of success in the stock market. Always remember that shares trading carries risks, and it is essential to invest wisely to ensure long-term profitability.

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