How to Trade Shares: A Beginner’s Guide
What are shares and share trading?
Shares, also known as stocks or equities, represent ownership in a company. When you own shares of a company, you become a shareholder, which means you have a claim on the company's assets and earnings, and you can potentially generate income through capital gains and dividends.
The terms "stock" and "share" are often used interchangeably, but they have slight differences in their meanings. Generally, a "stock" refers to a collective ownership in a company. It represents a portion of the company's ownership and is typically divided into shares. On the other hand, a "share" specifically refers to an individual unit of ownership in a company.
In practical usage, "stock" is often used to refer to the overall ownership structure of a company, including all of its shares. For example, you might hear someone say, "I bought stocks Tesla," referring to the ownership interest they acquired in the company. In contrast, "share" is used to specify the specific units of ownership. For instance, someone might say, "I own 100 shares of Apple," indicating the number of individual ownership units they possess.
While the terms "stock" and "share" may have slightly different connotations, they are often used interchangeably in everyday conversation and are both used to represent ownership in a company.
But what is share trading? It's similar to trading forex pairs or commodities like Gold. Just as you can go long (buy) or short (sell) on various financial instruments, you can also trade ownership units on the stock market – a practice we call share trading. For instance, in the technology sector, you have the opportunity to trade shares of well-known companies such as Meta, Google, or Twitter, to name just a few.
However, it's important to note that when you're trading shares through Pepperstone, you're not physically owning the shares themselves. Instead, you're engaging in speculation on the share price of a particular stock using derivative products like Contracts for Difference (CFDs). This approach allows you to potentially profit or incur losses from price movements in the market without the need for ownership.
Trading shares as CFDs introduces flexibility into your trading strategy. With CFDs, you can make trading decisions based on market trends and price movements, regardless of whether the market is rising or falling. We'll delve into the factors that influence these price movements a bit later on, but for now, remember that Pepperstone offers you the opportunity to participate in share trading without the complexities of traditional ownership.
Share trading encompasses various approaches and strategies suited to different trading styles. Understanding the different types of share trading, as outlined in the table below, can help you choose the approach that aligns with your goals and preferences:
Executing trades within the same trading day, with positions typically closed before the market closes.
Holding positions for a few days to several weeks, aiming to capture price movements within an established trend.
Involves holding positions for an extended period, ranging from weeks to months or even years.
Aim to capitalise on short-term price fluctuations, often relying on technical analysis and intraday patterns to identify entry and exit points.
Often use technical analysis to identify potential reversals or breakouts and take advantage of medium-term market fluctuations.
Focus on long-term trends and fundamental analysis, aiming to profit from significant price movements.
Is this for me?
This style of trading requires active monitoring of the market and quick decision-making.
This approach allows for more flexibility and requires less time commitment than day trading.
Requires patience and a broader view of market trends and economic factors that can impact share prices.
Which share CFDs can I trade?
There’re a wide range of stocks available to trade and these can be categorised either according to region, for example US stocks, or according to industry i.e., tech giants or global blue-chip companies. Take a look at the available stocks you can trade with Pepperstone:
600+ share CFDs form NYSE and NAS100
100 UK equities from the LSE
80+ German shares from various sectors
200 Australian equities from the ASX
Trade Tesla Motors Inc, Apple Inc, Alibaba Group Inc, Amazon.com Inc, Microsoft Corp and all of the top US companies
Trade Royal Dutch Shell, BP, Unilever, Vodafone, Barclays
Trade equities like Deutsche Post, SAP, Volkswagon, Bayer, Siemens and more of the top German companies
Trade CSL Ltd., ASX Ltd., Telstra, Fortescue Metals, Cochlear Ltd and more of Australia’s top companies
Understanding share price movements
Several factors can significantly influence the movement of share prices on the financial markets. Firstly, a company's financial position, including its debt level, cash flow, and earnings, plays a crucial role in determining stock prices. Additionally, economic data that indicates the overall health of specific sectors can impact share prices.
Finally, staying informed about news reports and the latest research related to the industry can provide valuable insights into potential price movements. You can take advantage of our comprehensive market analysis, including daily market updates, expert commentary, and in-depth research reports, empowering traders with the latest information to make informed decisions.
Getting started with Share Trading
To trade share CFDs on Pepperstone.com, follow these key steps to get started and optimise your trading journey:
- Learn about shares and grasp going long or short
- Open or log in to your Pepperstone account
- Choose a suitable trading platform such as MT4 or cTrader, which offer advanced features and tools
- Select the specific shares you wish to trade, such as Netflix or other available options
- Develop a well-defined trading plan and implement a robust risk management strategy. Set stop losses and take profits to protect your investments
- Execute your first position by opening a trade based on your analysis and trading plan
- Regularly monitor your position, stay updated with market developments, and close your position at an opportune time
If you’re just getting started, you can refine your trading skills and strategies through simulated trading or demo accounts available on Pepperstone.com.
Managing Risk and Tips for Successful Share CFD Trading
Managing risk and implementing effective strategies are crucial for your success in share trading.
One key aspect of risk management is setting stop-loss orders.. By setting stop-loss orders, you can define predetermined exit points for your trades, helping to limit potential losses. This way, if the market moves against you, your positions will automatically close, protecting your capital. You can also set up a take-profit order, this allows you to lock in a profit at a certain price point.
Another essential risk management tool we emphasise is proper position sizing. You should allocate a portion of your capital to each trade based on your risk tolerance and account size. Diversifying your positions and avoiding overexposure to a single stock or sector can help reduce the impact of individual trade losses on your overall portfolio.
To support your journey in share trading, we also offer valuable tips and trading best practices with our educational content. Conduct thorough research and analysis before making trading decisions. Stay up-to-date with market news, economic data, and company announcements that can impact share prices. Take advantage of our educational content, including trading guides and webinars, to enhance your knowledge and refine your trading strategies.
By implementing effective risk management techniques and leveraging the educational resources available at Pepperstone, you can increase your chances of success and navigate the world of share trading with confidence.
What trading platforms are available for share CFD trading?
There are many trading platforms available for share trading, including popular and advanced trading platforms such as MetaTrader 4 (MT4), MetaTrader 5 (MT5) and cTrader. These platforms provide a user-friendly interface, powerful trading tools, and advanced charting capabilities to help you analyse the market and execute trades efficiently.
What is the difference between stocks and shares?
While the terms "stock" and "share" are commonly used interchangeably, they do have distinct nuances that shed light on their specific roles in the realm of ownership within companies.
The term "stock" typically refers to a broader concept. It encompasses the entire ownership capital of a corporation. This capital is divided into units, which are known as shares. Stocks represent the overall ownership in a company, encompassing all the shares issued by that company. On the other hand, "shares" refer to the individual units into which the ownership capital of a company is divided. Each share represents a fraction of ownership in the company. When individuals or entities purchase shares, they become shareholders, giving them certain rights, such as voting on company decisions and potentially receiving dividends.
In essence, stocks are the collective ownership interest in a company, while shares are the individual units that make up that ownership.
How can I learn more about trading share CFDs and improve my skills?
Pepperstone provides a range of educational resources to help you learn more about share trading and enhance your skills. We offer educational content such as trading guides, webinars, and tutorials that cover various topics, including fundamental and technical analysis, risk management strategies, and trading psychology. By taking advantage of these resources, you can expand your knowledge, gain insights from industry experts, and improve your trading proficiency.
Can I trade shares on a demo account?
Yes you can trade shares on a demo account. Practising with a demo account allows you to apply your learnings in a risk-free environment and further refine your trading techniques.
Conclusion: The TL;DR
- Share trading offers a diverse selection of stocks from various sectors and markets.
- Managing risk and implementing effective strategies, such as setting stop-loss orders and proper position sizing, are crucial for successful share trading.
- Staying informed about company financials, economic data, and industry news can provide valuable insights into potential price movements.
- Pepperstone provides market analysis, expert commentary, and educational resources to support traders in making informed trading decisions.
- Opening an account, choosing a trading platform, and creating a trading plan are key steps to get started in share CFD trading.
- Practicing and continuously refining your trading skills can contribute to long-term success in share trading.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients. Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.