There are two main ways of making money from shares trading:
- Price movement. When demand outstrips supply for a company’s shares, their price will increase. Shares 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.
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.
It is also possible to use derivative products like CFDs to participate in the shares market. These allow for more flexibility than traditional trades, with the opportunity to take long or short positions to trade in both bull and bear markets.
These products operate on leverage, to increase exposure on a position without the use of more capital. However, this means CFDs also carry greater risks: including the risk that your losses could exceed your deposits.