What is share trading?

An introduction to stocks and shares

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When you buy a share, you are buying a single unit of ownership in a company. As such, you become a part-owner (or shareholder) of the company. Share dealing is the buying and selling of shares in the hope of earning a profit.

Normally, you’d buy shares in a given company in the hope that the company would rise in value. As a company’s value increases, so does the price of its shares, which could then be sold for a profit. If the company’s value decreases, shares will drop in price and may have to be sold for a loss.

Sometimes, you might also be eligible to receive a portion of the company’s profits in the form of a dividend.

How to trade shares

Shares are bought and sold on a global network of exchanges. Most Australian shares, for example, are traded on the ASX 200.

These exchanges have strict rules for the companies that can list on them, and set hours during which shares can be bought and sold. Shares on the New York Stock Exchange, for instance, can only be bought and sold between 9.30am and 4pm EST (except when trading out-of-hours).

Only certain participants can buy and sell shares on exchanges. For that reason, most people deal shares via a stockbroker.

Who deals shares?

Individual share dealers tend to fall into one of two broad categories:

  • Investors, who focus on long-term value by building a portfolio to deliver returns over several months or years
  • Traders, who try to capitalise on short-term movements, often by making many trades in a single day

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