Would you like to understand how people buy and sell shares of companies on the stock market? This process is called equity trading, where investors purchase and trade company stocks, also known as equities. Equity trading is a way to own a piece of a company and potentially earn money if the stock price goes up. However, it's not without risks. Stock prices can fluctuate, and there’s always the possibility of losing money. Below we’ll explore what equity trading is, the key aspects involved, and the risks you should be aware of before getting started.
Key aspects of equity trading
- Stock exchanges: Equity trading happens on stock exchanges, which are organized markets where buyers and sellers trade shares of public companies. Major exchanges include the New York Stock Exchange (NYSE) and US100. These platforms have set trading hours, typically during weekdays, and ensure that trading is fair and regulated.
- Buying and selling shares: The core of equity trading is buying and selling shares. When you buy shares, you’re purchasing a small ownership stake in a company. If the company does well and its stock price increases, you can sell those shares at a higher price to make a profit. Conversely, if the stock price drops, you might sell to avoid further losses.
- Types of trades: There are different types of trades in equity trading. Market orders allow you to buy or sell immediately at the current price. Limit orders let you set a specific price at which you want to buy or sell, ensuring you don’t pay more or receive less than you planned. Understanding these types can help you better manage your trades.
- Trading strategies: Traders use various strategies to achieve their financial goals. Some focus on short-term profits through day trading, where they buy and sell within the same day. Others prefer long-term investing, holding onto stocks for years to benefit from the company’s growth. The choice of strategy depends on your goals and risk tolerance.
- Research and analysis: Before making any trades, it’s essential to research the companies you’re interested in. This involves looking at their financial performance, market trends, and overall economic conditions. Tools like stock charts, news reports, and analyst opinions can provide valuable insights.
- Risk management: Equity trading involves risks, as stock prices can be unpredictable. Setting stop-loss orders, diversifying your portfolio, and only investing what you can afford to lose are important practices to protect your investments. Managing risk effectively is crucial for long-term success in equity trading.
What are the risks of equity trading
- Market risk: The most significant risk in equity trading is market risk. This refers to the possibility that the value of the stocks you buy may decrease due to various factors, such as economic downturns, changes in interest rates, or negative company news. If the market moves against you, you could lose a portion or even all of your investment.
- Volatility risk: Stock prices can be highly volatile, meaning they could fluctuate widely in short periods. This volatility can be caused by anything from political events to changes in market sentiment. For short-term traders, this can result in substantial losses if they’re not careful.
- Liquidity risk: Liquidity risk occurs when you can’t buy or sell a stock quickly enough without affecting its price. In some cases, you might find it challenging to sell your shares at your desired price, especially in thinly traded stocks or during times of market stress.
- Company-specific risk: Investing in individual companies exposes you to risks specific to those companies. Poor management decisions, financial problems, or declining industry conditions can negatively impact a company’s stock price. If a company performs poorly, the value of your shares can drop, potentially leading to losses.
- Leverage risk: Some traders use borrowed money (leverage) to increase their potential returns. While this could amplify gains, it also magnifies losses. If the market moves against you, you could lose more money than you initially invested, leading to significant financial strain.
How to start equity trading
Before you start learning equity trading, it’s important to understand CFDs (Contract for Difference). CFDs are a type of financial product that allows you to trade on the price movements of shares without actually owning the underlying stock. With Skilling, a reputable and award-winning CFD broker, you can trade over 900 CFDs on shares from companies around the world, including well-known ones like Tesla shares, NVIDIA shares and more, giving you access to a wide range of markets, though it’s important to note that past performance is not indicative of future results.
Step 1: Open an account
To start trading with Skilling, you first need to open a Skilling CFD trading account. This is a straightforward process where you provide some basic information about yourself and verify your identity. Once your account is set up, you can fund it with the amount you want to start trading with.
Step 2: Learn the basics
Before diving into trading, it’s crucial to learn the basics of equity trading and how CFDs work. Skilling offers educational resources like tutorials, articles, and webinars to help you understand key concepts such as how to read stock charts, the different types of orders you can place, and risk management strategies.
Step 3: Explore the Skilling platform
Skilling provides an easy-to-use trading platform where you can access 900+ CFD shares available. You can use the platform to analyze stock prices, follow market trends, and place trades. The platform also offers tools like stop-loss orders to help you manage your risks.
Capitalise on volatility in share markets
Take a position on moving share prices. Never miss an opportunity.
Step 4: Start trading
Once you feel confident, you can start trading. Begin by choosing the shares you want to trade, decide how much to invest, and place your trade on the Skilling platform. Remember to start small and gradually increase your trades as you become more experienced.
Step 5: Monitor and adjust
After you’ve placed your trades, keep an eye on how they’re performing. Skilling’s platform allows you to monitor your positions in real time. You can also adjust your trades based on market conditions, ensuring you stay on track with your trading goals. However, risk management is crucial when making trades.
Conclusion
While equity trading offers the potential for significant financial gains, it also comes with risks that require careful consideration. Understanding the key aspects of equity trading, such as stock exchanges, types of trades, and trading strategies, is important. Equally important is the need for thorough research and effective risk management to protect your investments from market volatility. Source: cmcmarkets.com
