How to trade shares

If you’re ready to open a position on a share, here are three steps to follow:

You’d buy a company’s shares if you believe it will experience strong growth. To earn a profit, you’d then need to sell them at a higher price. If, on the other hand, you believe that a company is going to experience difficulties that could affect its share price, you may decide to sell your shares to lock-in your current profit or limit any potential future losses.

Learn more about shares

What moves the price of shares?

Before it goes public through an IPO, a company’s shares will have a set price range – often determined by the underwriter of the IPO (normally a large bank). This range will be set according to the anticipated interest in the listing, as well as the company’s fundamentals – including its revenues, its products, and its existing popularity.

Once the IPO has completed, fluctuations in the share price are caused by changes in the supply of and demand for the stock. If supply is higher than demand, the share price could fall; if demand is higher than supply, the share price could rise.

There is always a limited supply of shares in a company. It may make the decision to issue more shares, or to buy shares back from shareholders to reduce the supply, but the number of shares outstanding is always known.

There are a number of reasons that the demand for a share can fluctuate over time, including:

• Earnings reports. Companies usually release interim reports on their financial performance once every quarter and a full report once a year. These influence the company’s share price as traders and investors use figures including revenue, profit and earnings per share (EPS) as part of their fundamental analysis
• Macroeconomic data. The state of the economy a company operates in will affect its growth. Data releases such as gross domestic product (GDP) and retail sales can have a significant influence on company share prices – strong data can cause them to rise, while weak data can cause them to fall
• Interest rates. if interest rates are low, the stock market might see increased activity – despite the previous factors mentioned here. That’s because more people could turn to stocks and shares to achieve greater returns than they might otherwise be able to if they saved their money in a bank account
• Market sentiment. Share price movements aren’t always based on fundamental analysis. The view that the public, as well as market participants, have on a particular stock can also cause demand to fluctuate. This is how speculative bubbles are formed

Discover how to trade shares

With us, you can trade stocks by speculating on a share’s price movements with derivatives like CFDs.

With CFDs, you can enjoy tight spreads and limit your maximum risk by setting a guaranteed stop-loss¹ before opening your position. CFDs can also be used to hedge your equity portfolio against future losses.

CFDs are leveraged products, which means that you won’t need to commit the full value of the position upfront – just a deposit, known as margin. But, bear in mind that leverage can increase both your profits and your losses.

With CFDs you can ‘buy’ (go long on) the shares if you think the stock price will rise, or you can ‘sell’ (go short on) the shares if you think the price will fall.

Shorting with derivatives can be an effective way to hedge against downward price movements in your non-leveraged investment portfolio, or it can be a way to generate profits outright from shares that are falling in value.

However, please note that short-selling is a high risk trading method because share prices can keep rising – theoretically without limit. This means that when taking a short position, you stand to incur unlimited losses. If you are using derivatives, you can attach stops to your positions to protect yourself.