Ever wondered how you can buy and sell shares in the stock market?
It sounds pretty straightforward (and on the surface it actually is) but if you’re going to get serious about it, there’s a lot to consider, such as:
In this article, we’ll answer many of these questions to help you get started in the world of trading shares. Let's first start off with where all this happens!
In super simple terms, the stock market is a place where shares of publicly listed companies are traded. It’s the place you can go to when you want to trade the shares of companies such as Facebook, Amazon, Apple, Netflix and Alphabet (FAANG stocks).
Without diving too much into the nitty gritty just yet, all you need to know to start with is that each country has its own stock market; the US has theirs, the UK has theirs and so does Australia and other countries.
At its core, the stock market works in a really simple way: it lets buyers and sellers negotiate prices and make trades.
The way it functions is that companies will first list shares of their stock on an exchange. The reason they do this is to allow investors to purchase their shares, which helps them raise money to grow their business. Once the initial investors have shares, they can then buy and sell them amongst themselves.
The exchange (eg. Nasdaq exchange or New York Stock Exchange) keeps track of the supply and demand of each listed stock.
Traders can only trade when the stock market is open. And when exactly is that? It’s usually during the host country’s standard working hours.
For example, if you wanted to trade the US Stock market, their stock exchanges – such as the NASDAQ and NYSE – are open from 9:30 am to 4 pm (Eastern Standard Time), which falls broadly within the country’s working hours.
Now that we’ve covered what the stock market is and how it works, the next question you might be asking is what exactly are ‘shares’? And how are they different from a ‘stock’?” It’s a fair question, because many people tend to confuse the difference between stocks and shares.
So, buying shares basically means you own part of a company. The term “stocks” tends to be a more generic term and is commonly used to refer to a specific company. Here’s an example of how such a phrase would be typically used:
Person A: “Hey! Which stocks do you have in your portfolio?”
Person B: “Oh, I’ve got Google and Facebook”
The term “shares”, however, tends to refer to a quantity of a specific stock. So, using the above example, this is how it might continue.
Person A: “Oh, that’s cool, how many shares did you buy of Google?”
Person B: “I bought 100 shares of Google”
Without diving too deep into the definitions, this is all you really need to know about the key differences between stocks and shares.
Now that we have a good idea about what the stock market is and how shares work, let’s take a look at how to buy and sell shares.
First and foremost, you’ll need to pick a broker that offers share CFDs. It’s important to find a brokerage that offers a wide range of shares across multiple markets at a cheap and affordable price. Axi offers share CFDs to the most popular stocks across the US, UK and European markets.
Next, you’ll need to open a MetaTrader 4 (MT4) account so that you can use the trading platform to see all the different shares you can trade. For more information on how to do this, read our guide on how to open an MT4 account.
Once you’re done with that, you can now access the world of share CFDs. Of course, the next question that your faced with is: which share CFDs do you buy or sell?
To answer that question, it’s important to analyse the stocks and see which ones present the best opportunities to trade. To do this, there are a couple of methods of analysis at your disposal:
Applying a combination of these can help you better drill down into the trading opportunities that the world of share CFDs offer you. The beautiful thing about trading share CFDs, as opposed to owning shares outright, is that you can trade in both directions – going long if you think the stock price is going to rise, and going short if you think the stock price is going to drop.
Note: if you choose to buy shares in a company, the only way to profit is if the share price goes up.
Once you’ve narrowed down the stocks you want to trade, it’s important to manage your risk. As tempted as you may be to sell your house and trade your analysis, it’s important to realise that trading share CFDs is risky, and with poor risk management you could lose all your money.
Obviously, we don’t want that happening, so, to help prevent it and ensure you have the highest chance of turning a profit from your journey into trading, you’ll need to know about risk management.
Risk management is about calculating the probability of your trades being right/wrong and applying proper risk allocations to it. It means calculating the lot size of your trade based on your stop loss distance and the amount of capital you’re prepared to risk.
At this stage, you would have ideally placed your first trade in the stock market. Most people tend to gravitate towards the US Market, but did you know that you can also trade the most popular stocks in the UK and European stock markets through Axi? That’s an important and often undervalued point of diversification you might want to consider as you begin your journey into trading shares.
Further reading: What is the difference between CFDs and share trading?
New traders commonly ask what are the best shares for beginners. The broad answer is that, as someone new to trading, it’s better to trade more popular stocks. This is because these stocks often have wide media coverage and large discussion forums dedicated to discussing their every move. This is a sort of self-regulating feature that prevents inaccurate and false information from deceiving investors.
A common misconception is that it takes a lot of money to trade share CFDs. While it is true that trading traditional shares can require a lot of capital - for example, with a capital of $1,000 you can only buy 2 shares of Netflix priced at $500, the same can’t be said for share CFDs.
With the use of leverage, you can actually buy up to 40 share CFDs of Netflix with the same amount of capital.
Axi does not charge a single cent of commission for traders to trade share CFDs. This is unlike many other brokers who charge hefty amounts, and even minimum amounts, to trade share CFDs.
Share CFDs have opened up the world of trading shares, in both directions (long and short) to many traders around the world and have even made it accessible to traders who prefer to commit a smaller amount to get their feet wet.
There are many approaches to trading share CFDs and it’s important to note that you need to pick a trusted broker that equips you with the best tools to trade it, but also to equip yourself with relevant education to take on the stock market.
The information is not to be construed 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 trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.
Having some of the largest companies in the world like Amazon, Google and Apple, make the US stock market the main market for share trading, find out how to trade these US shares here.