Trading stock market shares

organisation of financial markets

The "stock market" is a general term used to describe a set of financial exchanges around the world. Traders use these exchanges to buy and sell shares of companies, commonly known as stocks.

Stock exchanges allow companies to list their shares (if they meet certain criteria). The owners of these companies can sell some or all of their shares.

Markets also allow traders and investors to buy and sell these stocks and potentially profit from the success of these companies.

Almost all developed countries have at least one stock market that traders can use to trade stocks of that country's companies.

Of course, there are major markets in the United States - such as the Nasdaq and the NYSE. But there are also markets in Italy, Spain, the UK, Japan, etc., among other countries.

How does the stock market work?

If you're a stock market newbie, it may seem overly complicated. However, to simply things, just think of it as a sort of auction, where supply and demand determine a stock's price.

Accordingly, for each stock, you'll find both sellers and buyers. And the market is where requests for stocks and the price offers of sellers are processed. Consider a car auction: an auctioneer will start bidding at a certain price, and buyers will begin to bid. Bidding will ensue up to the highest price that bidders are willing to pay.

The stock market does the same. But there are many buyers and sellers. This is called a bilateral auction process.

In the old days, trading was done on the stock exchange floor, and brokers shouted out orders on behalf of their traders. Now, thanks to modern technology, we use computers, websites and trading software to trade a stock market.

So it's actually quite simple. The stock market is just where sellers and buyers confront each other to exchange their stock shares at an agreed-upon price.

How can I learn how to trade the stock market?

Getting started in the stock market can be difficult at first. Picking the right stocks, analysing charts, placing your first order, drawing up a trading plan, defining your risk management settings, etc. are among the things you'll need to figure out.

Fortunately for you, trading is a lot easier than it used to be. Information is now at your fingertips. If you take sound advice, learn from the right people, and focus on developing solid skills, you can make it happen.

The good news is, you're on the right website. This page (and the other articles in this section) aims to provide you with the basics on how to trade stocks online.

Why should I trade the stock market?

Profits: the most obvious benefit of trading stocks is the ability to earn profits. When a stock increases in value, your portfolio increases in value accordingly (weighted by your percentage of holdings in that stock). A company's potential for growth is therefore a trader's leading incentive to invest in it.

Dividend earnings: many stocks also offer the possibility of earning dividends. Dividends are a great way to earn additional investment income, and who doesn't want another source of income?

Diversification: this is another important benefit of investing in the stock market that many traders forget. A properly diversified investment portfolio helps offset losses in one sector of the market with gains in another, which means that your portfolio has a high potential of being profitable as a whole.

Ownership: buying shares gives you a share of ownership in a company. Shareholders receive annual reports to better understand the company's sales environment, and they can vote on board members too. Some shareholder meetings are great fun, like Berkshire Hathaway's, where Warren Buffet presents special offers on products from his companies. Others can be tense, if an aggressive shareholder (with many more shares of stock than you) makes a move to overthrow the current management team.

How can I start investing in the stock market?

It has never been easier than now to invest in the stock market. All you need is a trading account with money in it and a trading platform to buy stocks, as well as access to a website that provides stock charts.

Not all brokers are created equal, so do some research, and go for large ones that comply with your country's regulations.

How much capital do you need to start trading? The answer: not a lot! Some of the best stock traders got their start with a mere £1,000. If you're just getting started, you can first trade on a demo account to learn the ropes.

You'll want to analyse a stock's fundamental data and charts, keep a shortlist of stocks that interest you, and look for promising trading opportunities. You can do all of this on the MetaTrader 5 trading platform. You can test it out today for free by opening a demo account.

Recommended stock broker

Account typeStock trading account, margin account (79% of CFD accounts lose money)
Management by mandateNo
Stock brokerage feesNo commissions for a min. monthly volume of €100,000 EUR, otherwise 0,20%.
Demo accountYes
Our opinionTrading without commissions, but with a very limited choice of 2,000 shares and 16 ETFs.
Broker reviewXTB
Investing carries risks of loss