We often talk about shares, the stock market and how to trade these financial products, but what are shares?
Giving an analytical explanation is certainly not easy for those who are beginners and perhaps even for those who are slightly experienced in this sector.
Nowadays on the news or on financial news sites there is no distinction between shares, companies, shareholdings; today we really want to clarify what shares are on the stock exchange and we will try to do it as fully as possible.
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What are shares?
Let’s start immediately with the definition of share in technical language, but also understandable to non-experts.
Shares are financial stocks that provide the holder with the title of shareholder. Basically, we have to imagine a that a company is divided into many small shares. Each share is nothing more than a representative stock of that company.
It is very important to emphasize the concept of a partner, because by buying a share you are actually buying a slice of that company, with related burdens and honors.
Shares vs bonds: differences
What are the differences between shares and bonds? These are two very different financial assets.
Bonds are in fact a loan that an investor grants to the company that issued them, whose yield and duration is known with certainty.
The shares, on the other hand, as we have already pointed out, involve the assumption of the title of shareholder. So by buying a shares you are providing venture capital to the company.
Also there is no duration of possession, this could potentially be infinite. The return also varies according to the condition of the company.
Not only it can decide whether or not to pay dividends, but dividends can vary from year to year.
Furthermore, the price of the shares is not predetermined, so in the event of a sale you will know with certainty the price only at the time of the sale of the share.
What are shares in the stock market?
Including the definition of share, let’s move on to the more common one, or what are shares on the stock exchange?
Shares are not necessarily traded on a stock exchange, there are many unlisted joint stock companies, whose shares are sold from one person to another without going through the stock exchange.
However, a company can decide to put its shares on the free market, or by being listed on the stock market.
In this case, the share trading takes place on the stock exchange and the value will be determined by the market trend, or by following the laws of supply and demand.
What determines the shares price?
The shares price rises when demand rises, conversely the price falls when supply rises.
In much more practical terms, if the buyers (demand, based on the amount invested) exceed the sellers (offer, again based on the amount invested), the price of the shares goes up, vice versa it goes down.
Now that we have understood this technical point, what does the share price depend on? It is not easy to say, but mostly from the following factors:
- Economic performance of the company;
- Market sentiment;
- Trend of the sector where the company operates;
- Geo-political events;
- Influence from other markets, such as bond and currency.
The factors can be many more, but certainly those listed above affect the price of the shares.
What is trading on shares?
Trading shares means buying or selling shares. Trading, in fact, means negotiation. In our case we are talking about financial trading, since we are trading on a financial assets such as shares.
A trader’s goal is obviously to make a profit, but how can this happen?
Quite simply, if a trader buys a share at a certain price and sells it later at a higher price, he gets a capital gain, that is, he has more money than before. So the trader made a profit.
Conversely, if the selling price were to be lower than the purchase price, the trader would suffer a loss.
To trade stocks you need a financial intermediary. In recent years, thanks to technology, many online brokers have emerged that allow you to independently trade shares and other financial assets.
In the next paragraph we will talk about eToro, a broker that allows you to trade shares directly (thus becoming a partner of the company), or with the CFDs tool, which actually allows you to invest in shares without becoming a shareholder. How? With CFDs you only invest on the price change.
Buying shares on eToro
As promised now let’s talk about eToro, which in addition to CFD trading allows real trading on shares.
The broker is very famous today because it is the leader of social trading in the world and over the years it has managed to expand to get more than 10 million accounts. Please note that there are no commissions on either the purchase or sale of shares. This is done very often for those who trade with their bank.
To buy shares without using CFDs on eToro you don’t have to do anything difficult, we will see how investing on eToro is accessible to everyone. In the next few lines we will try to give you all the material you need to understand how to buy shares on eToro. In the first place it will clearly be necessary to open an account on eToro:
If you want to have a real account you will have to wait until your account has been verified by the eToro team, that is, after having followed all the procedures. Alternatively, with a demo account you won’t have to do any verification, you don’t have to provide any documents and you don’t have to make any deposit.
Once you are on the platform with your real or demo account, search for the stock you want to buy thanks to the search panel.
To buy shares with real trading on eToro you have to click on “Buy”, select the amount, the stop loss level, the take profit level, but above all to set a leverage of 1, which effectively implies an absence of the same. This condition is a must to buy shares without CFDs on the eToro online broker. In case you want to use leverage and therefore CFDs, this will also be possible. In this case you will have to select a leverage equal to 2 or 5, the maximum allowed by ESMA for retail traders. We specify that in case of “sale” or short position it will be possible to use only CFDs.
Plus500: complete CFDs broker
Plus500 is the second broker that we present to you as a stock broker. Plus500 is a very valid broker and is popular in Italy also thanks to the sponsorship on Atalanta shirts.
Here you can invest in many financial assets with CFDs, you can then take advantage of the rises and falls of traded assets without owning them!
Do you want to try Plus500? Do it with a free demo account, thanks to which you can test your skills on the financial markets with CFDs with fake money and therefore without any risk!