Financial Analysis

How trading stocks works

Trading stocks involves buying and selling the stock of publicly-listed companies in order to potentially profit from favourable changes in price. There are thousands of stocks to choose from, across dozens of industries, but while each stockfundamentals may differ, there are some basic principles that govern how trading stocks works. 

How Trading Works in the Stock Market 

Stocks, also known as shares or equities, grant the holder ownership of a fraction of the company issuing the stock. Investors in Amazon own a small piece of Amazon. This grants them rights, such as the right to vote on certain business decisions. Some shareholders also receive quarterly payouts called dividends. But traders buy and sell stocks primarily to benefit from the changes in price. 

There are two ways that stocks are traded: via exchanges, or over the counter (OTC). 

Likely the most well-known example of how trading works in the stock market is the New York Stock Exchange (NYSE). As the name implies, this is an exchange-based method of trading, where buyers and sellers come together on the trading floor to place trades. 

Brokers take orders from their clients and pass these on to the traders on the floor, the floor traders then find a trader who wants to make the opposite trade (so a trader looking to buy Facebook shares needs to find a trader whose client has Facebook shares they are looking to sell) and conducts the trade. 

Many exchanges, like the Nasdaq, conduct trades electronically, matching buyers and sellers without them having to physically meet. 

Over the counter trades are those made directly between parties, without an exchange acting as a market maker between them. Trading stock CFDs with Marketsx is an example of an OTC trade. 

Trading Stock CFDs 

Contracts for Difference (CFDs) are derivatives that track changes in price of an underlying asset. A stock CFD will move up if the underlying stock appreciates in price, and move down if the same asset depreciates. 

Trading stock CFDs has many advantages over buying and selling shares directly. Trading CFDs allows you to short a stock as well as going long. They also allow you to take much larger positions in a company than your capital may allow thanks to leverage, especially considering the stock of some companies trades for hundreds, or even thousands, of dollars per share. 

Remember, leverage can increase your losses as well as your profits. 

Making a stock trade 

Trading stocks on the Marketsx platform is a straightforward process. Search or browse for stocks to trade, then click on the Buy or Sell button above the stock chart. You can also open a position by right-clicking on the chart. 

The order ticket contains all the information you need to confirm the trade. Set the desired trade size and click the button to place the trade. The order ticket also allows you to set stop loss and limit orders.

When your position reaches a desired level of profit, or losses are too high, you can close the position with the click of a button.

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