Buying Shares – Chapter 8: How do I Trade Shares?

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Updated: Mar 5, 2019, 13:14 GMT+00:00

This is chapter number 8 out of 19. Read the rest: Read Buying Shares – Everything that you Wanted to Know but were too Scared to Ask – Chapter 1:

Buying Shares – Chapter 8: How do I Trade Shares?

This is chapter number 8 out of 19. Read the rest:

Read Buying Shares – Everything that you Wanted to Know but were too Scared to Ask – Chapter 1: Introduction
Read Buying Shares – Chapter 2: What are Stocks and Shares?
Read Buying Shares – Chapter 3: Different Classes of Stocks
Read Buying Shares – Chapter 4: What affects ‘Stock Prices’?
Read Buying Shares – Chapter 5: Stock Markets
Read Buying Shares – Chapter 6: Stock Exchanges, Why are companies listing on a stock exchange today?
Read Buying Shares – Chapter 7: Stock Indexes – What do they stand for?

In the past, trading shares was thought of as only accessible to the rich: you had to buy and sell through assured stockbrokers and it was very expensive. There was modest free flow of business information, so it was those who had the insider information, who made the majority of money.

The latter may still be true, but the stock market is now open to all. Since 1990s anybody can locate pretty much all information on a company thanks to the birth of the internet. This has forced brokers to propose a plain ‘execution-only’ service, meaning they no longer give advice; they will just execute the trade for you.

Some firms will charge you a transaction fee and a commission and others a yearly or monthly fee and these are all costs that you need to be aware of as they can eat up your profits.

A number of investors purchase shares just to get a regular dividend income. At present, you can purchase shares in large companies like BT, who give in excess of 4% dividend.

Other investors are more interested in capital growth. In this case a share goes up in value mainly as a result of the anticipation that a company’s profits will rise and which consequently will make the dividend payment to increase. This may be linked to an announcement made by that company of for instance a new CEO or a new product they are launching.

Investing for ongoing earnings-> buy shares that give dividends

Investing to expand overall wealth -> buy shares that give capital growth

Share prices as discussed earlier, are determined in a large part to the price of everything else in a free market: that is by supply and demand. Shares in firms that are estimated to be unsafe or overpriced will not draw investors and prices will go down. However, shares in companies that are doing well – or are projected to do well – create demand and will rise. Unlike other forms of trading where you can make a profit even from the company value dropping, in shares you need the company’s stock value to rise in order to see profit.

Tips such as from newspapers and those you might hear as rumors as well as from analysts might drive stock prices soaring. This is called speculation and is exactly what happened in ‘90s when tips were abounding freely which drove the stocks of these overvalued hi tech companies to unfounded levels. Though, in the long term, the shares will always balance themselves out: shares that are excessively low-priced rise in price and shares that are excessively expensive fall in price.

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Table of Contents

Intro

Intro