What’s shares?
Shares, or stock, represent ownership in a company. They are virtual securities you use to buy ownership of the company’s capital. You might have heard the expression “a public company”, but what does that actually mean? When a company thinks about raising more capital, it offers its equities (shares) to investors, i.e., goes public, which makes them available to anyone willing to invest. It also means that the company is listed on a stock exchange. All of that nowadays takes place online, as opposed to before when people had to visit a brokerage firm in person to trade and invest. Stockholders, or shareholders, with investments in the company’s capital, hold many rights regarding the company’s business, ranging from voting power to dividends to ownership of part of the company.
They say that the securities market is one of the easiest markets to trade in. That’s a very common place for beginners to gain some trading experience and see how real-life trading works. You can even say that stock trading is easily as popular as currency trading. The basics are not really hard to understand; there are millions of guides online with tips, advice, and software to help you boost your profits while you invest or trade on exchanges.
Types of shares
Obviously, certain types of equity can grant you more rights but it depends on the class and place in the hierarchical structure of stock rights. Here are some of the most popular shares a company can offer:
- - common shares;
- - non-voting shares;
- - preferred shares.
There’s a thing called “non-voting shares”, where the name speaks for itself: you don’t get to vote on the decisions taken in the company. However, these shares can still get you a handsome amount of money, as you’re entitled to receive dividends on schedule, regardless if the company is in the black or in the red. This is what we call preferred stock. In the proverbial corporate food chain, common stock does not hold a candle to preferred stock, as a preferred stock owner is the first in line to receive dividends from the company’s profits. A company is also free to offer convertible preferred stock, fixed-income securities that include an option for the holder to convert their preferred stock into a fixed number of common stock. Keep in mind, though, that preferred stock is really hard to come by nowadays; do not even try to buy it for a public company. It would be a futile attempt. What you’re more likely to find are different classes of stock that companies tend to issue. Classes typically determine the number of votes you get when you buy shares; they can easily differ from class to class. To understand it better, take a look at Google’s securities (Alphabet Inc, NASDAQ: GOOGL) and Berkshire Hathaway’s shares (Berkshire Hathaway Inc., NYSE: BRK.A). FYI, it’s a famous brokerage company; in late March 2022, their class A stock went at $538k a piece vs class B stock at merely $359.
Public companies tend to go for common stock when listing on the market.
Pricing
So what causes share prices to change? In fact, you can’t just name one thing; it’s a myriad of factors affecting the performance of a share differently: we’re talking company earnings, the global economic and political situation, supply, demand, and more. Long-term, the buck stops with the company: its performance, earnings and losses are the main drivers behind a share price change. Public companies are legally required to disclose their financial reports to the general public, usually online; these reports can also affect the performance, and so can the company’s plans and outlook.
So doing market research is actually more important than anything else. The rule of thumb is, to make a proper portfolio, you need to do your financial online research well, and the money will come flooding into your account. The key to understanding what is going to happen with a share on the exchange is to see how well a company is doing in its segment. If it’s doing well and the development’s going accordingly, then you can be sure (but not 100%) there’s going to be an upward trend on the stock exchange. Just remember: don’t be sure about anything. Yes, a security might seem undervalued, especially if you look at other securities. But a good, even great, report does not mean it’s going to suddenly skyrocket on the exchange. It might not even change. So do your research online and revisit analyses every time you come across an indicator or a figure. There’s a thing called analyst expectation. Basically, analysts expect a company to perform a certain way on the exchange. Sometimes, the stock will exceed their expectations; it is then said to have beaten expectations. However, if it underperforms, then when trading opens, these securities will trend downwards. This is also the case if a company does not grow or demonstrate stable results. .
Scandals also help matters greatly. Whenever a company is in hot water, its stock plummets (usually). So make sure to follow the news. The stock market has a very strong reaction to both positive and negative news.
Why choose share CFDs?
The thing is, if you want to invest in a Contract for Difference (CFD), you don’t engage with the stock market to buy shares, as surprising as it may sound. With CFD trading, you don’t own a share, but you still get dividends in the amount equivalent to the dividend for each share you’ve invested in.
If you ask yourself, “What is better: CFDs or share trading?”, then consider this: you can sell CFDs, or go short, if you expect poor future performance and thus profit from a price fall. While with share trading, if you do not own the asset, then it is traded on leverage. So when you sell the asset, you can only do it on margin, which is highly unprofitable.
Risks
Shares are riskier than indices or ETFs, we’ll give you that much. To be on the safe side, many investors buy different shares; that’s what we call building an investment portfolio. This is a very important investment tool; your profit directly depends on it, so it’s very important to build a proper stock portfolio. Your portfolio requires frequent rebalancing. Your goal is to maximise your return and minimise your risks, so portfolio diversification is a great way to make sure you’ll get continuous returns and profit on your investments. Again, do your research, follow the news and monitor changes in the market. You might think it’s a good idea to keep investing in and holding some stock for a long time; for example, if you’re dead sure the company is going to perform well over the next years. But more often than not, it’s not worth it and anything can happen. So our advice is, to make sure to allocate your money accordingly: you won’t go very far if you keep investing your money in the same stock over and over again.
