Stocks are a type of security that represents ownership or equity interest in a company. In the world of finance, stocks are also known as shares or equities. Stock ownership may entitle stockholders to dividend payments or voting rights on a company's corporate policies.
The ownership of stocks is established on a per-share basis. Therefore, the owners are often referred to as shareholders or stockholders.
Are stocks and shares the same thing? It’s a fair question because many people tend to confuse stocks and shares. Although the two terms are often used interchangeably, there are some differences between them.
Buying shares basically means you own part of a company. The term stock is 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:
Each country has its own stock market; the United States, the United Kingdom, Australia, and other countries all have their own.
Leading exchanges in terms of proceeds worldwide include*:
At its core, the stock market works in a really simple way: it lets buyers and sellers negotiate prices and make trades.
Companies will first list shares of their stock on an exchange. By doing so, they allow investors to purchase shares. This allows firms to raise funds to expand their operations while also improving their public image. Once the initial investors have bought their shares, they can trade them among themselves.
Exchanges, such as the Nasdaq or the New York Stock Exchange, keep track of the supply and demand of each listed stock.
Traders can only trade when the stock market is open. The stock market is usually open 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 09:30 to 16:00 (Eastern Standard Time), which falls broadly within the country’s working hours.
Stock trading is a type of investment activity where individuals or institutions buy and sell stocks on various financial markets. It involves analysing market trends, company performance, and economic factors to make informed decisions about buying or selling stocks.
Owning stocks can come with benefits such as a claim on assets, the power to vote, and receiving dividends.
Both traditional stock trading and stock CFDs are trading options that provide exposure to stock price movements. However, there are some key differences between them.
With traditional stock trading, you take direct ownership of the assets, and you can only profit if the stock goes up in value from the moment you bought it.
With stock CFDs, you can go long (buy) or short (sell) and potentially benefit from either direction of the market.
Since stock CFDs are based on stock price movements rather than ownership, you have the flexibility to speculate whether the price will increase or decrease.
By combining CFDs with leverage, only a small percentage of the value of a trade is required to open the position. In contrast, investing directly in traditional stocks could require a lot more capital. However, note that when trading with leverage, you are subjected to margin requirements. If your total balance falls below the margin requirement, your positions will close automatically with a loss.
When trading stock CFDs, you should consider a number of factors, such as regulation (verify that the broker is regulated in your county of residency), risk management, and fees.
First, you will need to pick a broker that offers stock CFDs. Look for a brokerage that offers a wide range of stocks across multiple markets and can ensure competitive and transparent fees.
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.
Once you’re done with this step, you can access the world of stock CFDs. Now you need to decide which stocks you want to add to your portfolio by either buying or selling.
To answer that question, you will have to analyse the stock price movements and see which ones present the best trading opportunities. To do this, there are two well-known methods of analysis available:
Applying a combination of these two methods can help you better drill down into short-term or long-term trading opportunities. With stock CFDs, 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. You would not have this flexibility if you owned the underlying asset.
Once you have narrowed down the stocks you want to trade, it’s time to set up the right risk management tools. As tempted as you may be to just dive into trading immediately, it’s important to realise that trading stock CFDs is risky, and without the necessary risk management tools in place, you stand to lose all your money.
Risk management entails evaluating the likelihood of your trades being correct or incorrect and allocating appropriate risk to them. Determine the lot size of your trade based on the distance between your stop loss and the amount of capital you are willing to risk losing.
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 you can also trade popular stocks in the UK as well as well-known European stocks. Diversifying your portfolio is important when you want to start trading stocks, yet stock diversification is often undervalued by traders.
Trading stock CFDs allows you to get involved with your favourite global companies by speculating on price movements.
Trading stock CFDs offers flexibility and allows you to potentially profit from either market direction. You can go long (buy) when you expect prices to go up or go short (sell) when you expect prices to drop.
Traditional stock trading differs from CFD trading in that it derives value from ownership. When you own the underlying asset, the stock price must increase to make a profit - you can only trade in one direction.
Stock CFDs allow you to trade on margin. This means you only need to put up a small percentage of the full value of a trade to open a position. Investing directly in traditional stocks could often require generous initial capital because you are paying the full price for every single share you are buying.
For most CFD brokers, a trader only needs to pay 20% of the full price of the share. In practice, this means you can enter a position that is 5 times larger with the same amount of capital when compared to traditional shares.
Stock CFDs are leveraged, meaning you can potentially make higher profits with a smaller amount of capital. While this can increase returns, it also increases the risk of loss.
FAANG is an acronym for the five largest companies in the technology sector of the US Stock Market. They are:
F - Facebook (FB)
A - Apple (AAPL)
A - Amazon (AMZN)
N - Netflix (NFLX)
G - Google (GOOG or GOOGL)
As well as being household names due to the nature of the services they provide, the FAANG stocks will be familiar to most people simply because of how large and profitable they are. But perhaps the most important thing for traders and investors is that they continue to have strong potential for growth.
|Walk Disney Co.||Vodafone||Siemens|
CFD trading gives you greater flexibility to open “buy” or “sell” trading positions on a wide range of global markets and potentially benefit from either rising or falling prices. Moreover, the use of leverage could amplify your exposure to the markets.
But what is the right trading method for you? See how stock CFD trading compares to traditional stock trading (investing).
Stock CFDs offer bigger exposure to the markets with the use of leverage, which could potentially amplify profits. However, leverage could also amplify losses. It is also important to remember that, unlike traditional trading, stock CFDs do not give you the option of stock ownership.
When trading with leverage, depending on the region you live in, you might also be subjected to margin requirements. If your total balance falls below the margin requirement, your positions will close automatically with a loss.
Traditional stock trading
|Use leverage||Pay full price|
|Multiple markets||Equities and ETFs|
|You don't own the underlying asset||Ownership of the underlying asset|
|Go short and benefit from falling prices||No option to benefit from falling prices|
|No shareholder privileges||Shareholder privileges and potential voting rights|
|Option to hedge your trades||Hedging requires the use of derivatives (options, futures, and inverse ETFs)|
With the use of the right platforms, tools, and plugins, traders can experience online stock trading in a way that is more intuitive, fast, and portable. When finding the right trading platform to trade stock CFDs, these are the ultimate tools to consider.
MetaTrader 4 is an excellent option for online traders who are looking for a trading edge. It is simple to use and offers extensive functionality for pros, allowing you to access limitless trading opportunities.
AutoChartist continuously scans the market for customised trade opportunities based on real-time pricing and your specific trade setups, then alerts you to potential trades.
A stop-loss is a predetermined level at which a trade automatically closes once the set price is reached. It's like a safety net if a trade goes against you, helping ensure a loss is not larger than you're comfortable with.
Keep in mind that stop-loss orders are subject to 'slippage', which is the gap between the requested and actual fill prices that can occur when market prices change too quickly. To protect yourself from slippage, you can use a limit order instead of a market order.
Want to secure your gains before the market gets a chance to reverse on you? Set a take-profit level, and when the market hits your desired level, your trade will automatically close and lock in your profit.
A trailing stop is designed to limit losses AND lock in gains; think of it as being like a Stop Loss, with some added flexibility. It sits at a set distance from the current price and moves up and down with the market.
Size matters in trading. The bigger the position, the greater the potential returns, BUT also the higher the risk. To help determine the right trade size, consider how much you would be willing to lose if the trade goes against you.
Use trading calculators to help set your trades.
Margin calculator: See how much margin is needed to open a position.
Profit/loss calculator: Helps estimate profits and losses and to set stop-loss and take-profit levels.
Pip calculator: Estimates potential profits or losses based on pip movements.
Don’t forget to set up risk management tools like stop-loss and take-profit orders.
This 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. It has been prepared without taking your objectives, financial situation and needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability with regard to the accuracy and completeness of the content in this publication. Readers should seek their own advice.
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