If you’re ready to open a position on a share, here are three steps to follow:
Alternatively if you’d like to learn more about how to trade shares, read our in-depth guide below.
Learn how the stock market works
The stock market works much in the same way as an auction – buyers and sellers negotiate a price that they are both comfortable exchanging for an asset, in this case shares of companies.
Companies that wish to raise capital will list their shares through the process known as an initial public offering (IPO). Once their stock is public, individual investors and institutions can start to trade on the shares.
Individuals who believe that a company will see strong growth will buy the shares, hopefully for a low price so that they can make a profit when they sell it at a later date. While individuals who believe a company will face trouble would sell the shares, aiming to make as much as possible for their shares so that they turn a profit or cut a loss.
You have to be registered to trade directly on an exchange, so most people will go through a stockbroker. In the case of leveraged trading, your provider will take the place of a broker – opening and closing positions based on your instructions. Today, the majority of stock trading takes place via an online trading platform.
What moves the price of shares?
Initially, a company will set a price at which it will list on a stock exchange – known as its IPO price. After that, fluctuations in the share price are caused by changes in the supply of and demand for the stock.
There is always a limited supply of a company’s stock. A company can make the decision to issue more shares, or buy back shares from investors to reduce supply, but the number of shares in circulation is always known.
If there are more buyers than sellers on the market, then demand grows and the share price will rise. However if there are more sellers on the market, indicating a fall in demand, then the share price will decline.
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 rates are high, individuals won’t need to take big risks to get healthy returns and can save instead, which may cause the stock market to see less investment. So if it looks like a central bank is likely to raise interest rates, demand for shares may fall
- 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
Know the difference between buying and trading stocks
Before you can take a position on a share, it is important to understand the difference between how to buy a share, and how to trade on its price movements. The main differences between these two methods are the timeframe that the positions are held over, and the means of making a profit.
Investors buy shares outright in the hope that they will increase in price and can be sold at a later date for a profit. They uphold the traditional mantra of buying low and selling high – known as going long. Investors will take positions over a longer period of time, attempting to profit from share price changes as well as dividend payments.
Traders use derivative products that take their value from the price of the underlying market. These do not require traders to own the shares so, while traders will not have shareholder rights or receive dividends, they can take a position to profit from both falling and rising prices. Traders will tend to hold positions over the short to medium term and focus on smaller market movements.
With IG Bank, you can trade shares by CFD trading. This method has different benefits– including out-of-hours markets, and the ability to go both long and short.
Build a share trading plan
A good trading plan can be hugely beneficial to your stock trading, as it will outline exactly what your aims are, how much capital you have at your disposal and what your appetite for risk is.
The aim of a trading plan is to take the emotion out of your decision-making, as well as providing some structure for when you open and close your positions.
Understand the risks and charges
When you invest in stocks, your risk is always limited to your initial outlay. If you were to invest CHF 1000 , all you could ever lose is CHF 1000 – even if the share price fell all the way to zero. You’ll also be charged a commission fee for entering and exiting each position.
The risks associated with trading are extremely different. CFDs use leverage, a feature which enables traders to open a position for just a fraction of the initial outlay required of investors. While leverage magnifies your profits, it could also magnify your losses.
There are tools that traders can use to manage this risk, such as stop-losses that enable them to define their exit point for trades that move against them. Normal and trailing stops can be impacted by slippage, which is when market volatility causes a disparity between the price you have requested and the price your provider can execute the trade at. However, you can protect yourself against slippage by attaching a guaranteed stop-loss. Unlike other providers, IG Bank doesn’t charge you anything upfront to use a guaranteed stop, but there would be a small premium to pay if it is triggered.
For example, let’s say you want to buy 1000 shares of a company at a share price of 1 CHF. To open a conventional trade with a stockbroker, you would be required to pay 1000 CHF (ignoring any commission or other charges). If you had opened your trade with a leveraged provider instead, you might only be required to put down a margin requirement of 5% on the same shares – this would give you a 1000 CHF exposure, with just 50 CHF needed to open the position.
When you use CFDs to trade shares, you will pay a commission.
Open a live account
Creating a CFD account with IG Bank is a straightforward process. You could be ready to open your first position with these simple steps:
Fill in our online form
We’ll ask a few questions about your trading experience.
Choose your account type
Decide whether to open a spread betting, CFD trading or share dealing account.
Fund your account and trade
Withdraw money easily, whenever you like.
If you don’t feel confident enough to start trading on live markets, you might want to consider opening a demo CFD trading account. An IG Bank demo account comes preloaded with 20,000 CHF virtual funds, which can be used to practise trading thousands of shares. Once you’re happy that your strategy would work on live markets, you can upgrade.
Find a stock trading opportunity
IG Bank offers a wide range of trading tools that will enable you to identify your first opportunity, including our:
- Stock market screener. Filter shares by country, sector or index – and sort by EPS, market cap and more
- Technical analysis tools. Use our powerful HTML5 charts that include indicators such as Bollinger bands, RSI and moving averages
- News and trade ideas. Find information on stocks to watch and market opportunities from our team of expert analysts and in-house financial writers
- Trading alerts. Set notifications for when a share price reaches a certain level or moves by a certain amount
Open, monitor and close your first position
Once you have chosen a stock to focus on, you can open your first position.
When you start trading, the first thing to decide is whether you’ll ‘buy’ the market to open a long position, or ‘sell’ to open a short one. When you open a trade, you can also attach orders to your position. This includes stop orders – which automatically close your trade if the market moves against you by a predetermined amount – and limit orders, which would close your position when the market moves in your favour.
You’ll be able to monitor your open positions on your workspace. Any running profit or loss will move in line with the underlying share prices. Once you are ready to close your trade, you can do so by clicking on the open position.
You’ll just need to select the ‘close’ button. Your final profit or loss would be realised upon the closing of the trade.
You can also close your CFD trading positions manually by taking the opposite position from your initial trade (unless you force open the new position). So if you opened your position by buying a share, you would close it by selling the same share – and vice versa.
You can make profit share trading by correctly predicting whether a company’s stock will rise or fall in value.
If you are investing in shares, you could only profit by going long. However, if you decide to trade shares with derivative products, you could take advantage of falling market prices by going short.
You can trade shares online via the IG trading platform, which offers you a fast and smart way to trade via your web browser. You will have full dealing functionality and be able to open, close and edit positions with just a few clicks.
Learn more about the IG online trading platform.
Beginners can start trading or investing in stocks by learning as much as possible about the market before they open a position. One way to do this is to take a look at IG Academy’s range of online courses.
Another way for beginners to gain confidence trading stocks is by opening an IG Bank demo account. They can build their strategy in a risk-free environment by practising trading with 20,000 CHF in virtual funds.
Develop your knowledge of financial markets
Find out more about a range of markets and test yourself with IG Academy’s online courses.