Shares trading definition

Shares trading is the buying and selling of company stock – or derivative products based on company stock – in the hope of making a profit.

Shares represent a portion of the ownership of a public company, and make up its worth or market cap. The trading of shares is one of the most popular and best-known markets in investing, alongside forex and commodities.

There are two main methods of profiting from the price movements of shares: non-leveraged trading (share trading), and leveraged trading.

Non-leveraged

Most shares trading takes place on stock exchanges, where public companies are listed. Only registered participants are allowed to trade directly with stock exchanges, so the majority of traders will do so via a stockbroker. IG’s execution-only share trading service enables you to buy and sell shares using our platform, through a custodian model.

Each share is a single unit of ownership in a listed company, traditionally offered in the form of a stock certificate (though this form of ownership is less common today). If a particular company increases in value on the market, its share price will increase correspondingly. However if a company decreases in value, so will the value of its shares.

There are two main ways of making money from share trading:

• Price movement. When demand outstrips supply for a company’s shares, their price will increase. Share traders try to take advantage of these price movements.
• Dividends. As they in effect part-own the company they have shares in, shareholders are entitled to a part of any profits the company decides to release back to investors in the form of a dividend.

Shares are usually bought and sold on stock exchanges which place strict regulations on both the companies that can list on them and the participants that can use them to buy or sell shares. For this reason, most individual share traders will buy and sell shares via an intermediary, called a stockbroker.

It is also possible to use a stockbroker to profit from shares that decrease in value, a trade referred to as short selling.