Whether you come across a story of a very successful and wealthy investor, it usually starts with shares. Remember that moment in “Forrest Gump,” where the main hero finds out he owns a part of a “fruit company”? Well, if Mr. Gump were real and alive right now, he would hold around $28 billion – thanks to Apple share he owned.
What is a share market
Share market –also called the stock market or equity market – is the financial market, where buyers and sellers operate with the shares of publicly-held companies. Unlike the currency market, the share market’s investments are in the form of stocks.
To invest in the share market, you need to buy stocks. Stocks represent a particular share you have in the total value of a company. Simply put, you can “own” a very small or relevantly big part of Facebook and earn on its shares going up or down – it all depends on the amount of money you are ready to invest in a company.
How does share market work
The whole concept is pretty simple. You buy a particular number of units and therefore become a shareholder. That means you invested your money into the company or building, or bank.
Your profit is dividends – a payment made by a corporation to its shareholders, and it depends on the percentage of the units you bought. As the company grows or shrinks, the price of your share is following the same pattern.
If you want to know more about the share and stock trading, have a look at our article about trading stocks online.
How to trade on the share market
When it comes to the share market, it’s not exactly the same trading as in, say, currency trading. Shares or stocks are more of a long-term investment, and it takes much more time to see the significant profit.
The broker acts as a middleman between the investors and the market. In general, the price formation principle is the same as everywhere else: supply and demand. Buyers on the market are offering a bid, as the highest price they are willing to pay. This bid is set against the seller’s ask and usually is much lower. The difference between the ask and the bid is called the bid-ask spread.
The price of the shares goes up and down, depending on such factors as the local companies’ data release, political environment, opinion leaders’ positions, etc. For example, when Netflix lost quite a big part of its subscribers, the price of its shares went down a bit.
Diversion is the key
When you join the shares market, remember about diversifying your trading portfolio. Although in perspective, shares promise more significant profit, they require more investments and bare more risks. Therefore, you better don’t put all the eggs in one basket.
You can either invest in particular shares or choose to buy a “package” or index, like the S&P 500, for example. S&P 500 is an index that includes the performance of 500 largest companies on the stock exchange list of the US.
The bottom line
There are some similarities in trading the shares and CFD. Both suppose you get in touch with the companies or, in case of CFD, also with commodities, etc. However, unlike CFD, shares require much more initial investments, since you actually invest a part of your money into the company.
Shares and stocks are a long shot and don’t expect them to bring you profit immediately. Even when things go south at some point, remember that the situation can turn around in the future, so keep an eye on the company’s news.
2020-07-27 • Updated