Understanding Stock Trading
Stocks (also called shares or equities) represent fractional ownership in a corporation. Companies issue stocks to raise capital for business growth through an Initial Public Offering (IPO). After the IPO, shares trade on secondary markets like the NYSE or NASDAQ.
Corporate Structure
Corporations are legal entities separate from their shareholders. This separation limits liability for both parties - your personal assets are protected from corporate debts.
Value Proposition
Stocks derive value from a claim on company profits (through dividends) and potential price appreciation. Market perceptions drive daily price fluctuations.
Stock Trading Mechanics
Modern trading occurs electronically through computerized networks, though traditional exchanges like the LSE still exist. With CFDs, you're speculating on price movements rather than buying physical shares.
Market Participants
Every trade requires a buyer and seller with different motivations - profit-taking, loss-cutting, or anticipating future movements.
Time Horizons
While short-term trading is possible, stocks traditionally appreciate over longer periods. Many investors hold diversified portfolios for years.
Dividends
Some companies distribute profits to shareholders through dividends, providing income regardless of share price movements.
Managing Trading Risks
All trading involves risk, and even experienced traders can't predict every market movement. Proper risk management is essential for long-term success.
Risk Level: Medium to High
Low
Medium
High
Risk Management
Never risk more than you can afford to lose on a single trade. Use stop-loss orders and position sizing to protect your capital.
No Guarantees
There are no foolproof strategies. Markets can be unpredictable, especially in the short term. Education and experience help improve decision-making.