Stocks guide

Can you predict the future of some of the world’s biggest companies? Get to grips with the basics and start profiting from the battles on the stock market.

Stocks and shares

Shares are partial ownership of a publicly traded company that’s bought and sold on the stock market, while stocks are a portfolio or collection of different companies’ shares. As the value of shares changes over time, traders can profit from buying shares cheaply and selling them later at a higher price.

Points

A point in stocks and shares refer to one unit of whatever currency in which the stock or share is traded. So if there’s a $5 change in a stock traded in the US, it would be a 5 point change, while a £5 change in a stock traded in the UK would also be a 5 point change.

Lots

If you’re discussing stocks, a lot is a group of shares that has been bought or sold.

  • Round lot – 100 shares or any number of shares divisible by 100, such as 500, 1,200 or 2,500 shares
  • Odd lot – less than 100 shares
  • Mixed lot – more than 100 shares, but is not divisible by 100, such as 129, 348 or 1,058

How a stock trade works

You think the shares of the company ABC will increase in value in the coming months because they are about to release a new product that you think will be wildly popular. You purchase 500 shares at $20 a share, making a $10,000 investment in the company.

If the price rises, you can sell the stock and make a profit. If the price drops, you’ll make a loss. Additionally, you’re required to pay commission to your broker when you purchase and sell the stock – this lowers potential profits and increases potential losses.

If you want to speculate on the price change, you could also use a CFD. This means that you would only need $1,000 to control the same $10,000 worth of stock. If the price increases, you’ll get the full profits, magnifying your investment. As there are no fees or commissions when you’re trading CFDs, you also avoid paying a broker’s commission.

Spreads

The spread is the difference between the ask and bid prices of a stock, or the price you pay to buy the stock versus the price you get when you sell it. The spread varies based on the total trading volume of the stock, the total number of shares outstanding and, most importantly, the demand for the stock.

 

 

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