How To Trade Shares?
Here’s a step-by-step guide on how to buy and sell shares.
Getting started with shares trading
We previously looked at the history of shares and the major factors influencing their prices in What is Share Trading. Now that you have a firm grasp of the distinctive features of the stock markets, let’s examine the various methods of trading shares, along with their benefits and drawbacks.
The trading of CFDs and investing are the two ways to participate in the shares market. Before beginning, a trader must have a thorough understanding of each one’s operation due to the potential financial effects that each strategy may have on gains and losses.
Investing in shares
Purchasing actual shares from a market to make a long-term profit is referred to as investing. Before seeing returns, one typically holds such an investment for several years or even decades. Additionally, you are qualified for dividends if you own shares (the amount of profit a company distributes back to the shareholders). Since only the management of the company has the authority to decide whether to pay dividends, shareholders cannot rely on this source of income.
These investors tend to be more concerned with fundamentals and the potential for long-term profit, making them less sensitive to short-term fluctuations. Dealing with an exchange is necessary when purchasing actual shares, and commission fees are frequently charged.
Trading shares CFDs
On the other hand, trading share CFDs is a more popular form of trading that entails buying and selling to profit from shorter-term fluctuations. With share CFDs, you are not actually purchasing the share, which is a significant difference from traditional investing. Instead, you make predictions about the direction of a share’s price. The main factors that lead traders to choose share CFDs over actual ownership are examined below.
1- Go long and short
CFD trading enables traders to profit from declining share prices for shares they have never owned because it does not require the purchase of the actual share. CFDs are thought of as a flexible form of trading because they allow shorting of shares.
2- Leverage
The starting capital needed is another crucial factor. You must pay the full amount of the shares you want to buy when investing in shares. Due to the high initial capital requirement, this is a deterrent for many aspiring traders. Let’s say you want to open a position with £200 and you are confident about the price of the Facebook share. If you use a 10:1 leverage, you can start a trade with $2,000 worth of stock.
3- Commission
A commission fee is typically charged when purchasing shares in an exchange for the service rendered. It is important to note that not all online brokers charge a commission when trading shares of CFDs. It is essential to research broker fees before opening an account.
4- Tax
Profits from stock investments are regarded as income and, depending on the country, may be subject to tax. However, since there is no ownership involved with CFDs, there is no stamp duty to be paid.
Are You Ready To Trade Shares Live?
Investing in shares vs. trading shares CFDs
Below we have summed up the differences between investing and trading shares CFDs to help traders decide what suits their trading style and financial goals best.
Who trades share CFDs
Online traders are increasingly choosing to add shares to their trading for different reasons each. Below we take a look at the types of traders and their motivation:
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Forex traders often get involved in shares trading in order to diversify their portfolio.
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Indices traders are the ones who are most heavily involved in shares trading as indices and shares can be traded in-tandem in order to hedge your exposure in the markets.
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Commodities traders are likely to trade shares of the oil, gas and mining sectors due to their knowledge of the commodity markets.