Sharesare primarily traded on stock markets, global networks of exchanges wherebuyers and sellers negotiate transactions. Major exchanges include the LondonStock Exchange (LSE) for UK shares and the New York Stock Exchange (NYSE) orNASDAQ for US shares.
How totrade shares
1. Directly Through the Stock Exchange:
Only qualified individuals or entities, suchas licensed traders or institutional investors, can trade directly on stockexchanges. Retail investors typically access the market through brokers who actas intermediaries.
2. Viaa Stockbroker:
Astockbroker acts as a middleman, executing trades on behalf of clients.Traditionally, investors contacted brokers by phone, but online platforms nowdominate. Stockbrokers fall into three categories:
· Full-Service Brokers: Theycreate and execute investment strategies tailored to clients’ goals, trading ontheir behalf. These services come with high commissions.
· Advisory Brokers: Theyprovide recommendations but ultimately leave the final decisions to theirclients. Their commissions are moderate.
· Execution-Only Brokers: Thesebrokers simply execute orders without offering advice, often at low commissionrates.
Whenchoosing a broker, consider your market knowledge and the time you can dedicateto managing your portfolio.
TradingHours
Stockmarkets operate within set hours based on their location. Trading occurs onlyduring these hours, which may vary due to daylight saving time adjustments.
How DoShares Become Listed？
Companiescan be classified as either private or public. Private companies are not listedon stock exchanges, meaning that their shares must be purchased directly fromthe owners, who are not obligated to sell. To become a public company, abusiness conducts an Initial Public Offering (IPO) to list its shares on anexchange, which helps to raise capital and enhance its reputation.
Publiclylisted companies face stricter regulations. They are required to appoint aboard of directors and release detailed financial reports at least twice ayear.
TheRole of Dividends
Dividends are a portion of a company’s profitsdistributed to shareholders, providing income, even when share prices arestable. When companies make profits, management decides how much to reinvest inthe business versus what to pay out as dividends.
Rapidly growing companies often choose toreinvest profits instead of paying dividends, aiming for long-term growth. Inthese cases, shareholders may benefit from potential increases in share pricesover time.
Advantages of Trading Shares
Trading shares offers the potential for highreturns, often surpassing traditional savings accounts. Investors also acquirevaluable assets, as shares retain intrinsic value unless a company fails.Additionally, dividends provide a regular income stream and may enjoy favorabletax treatment in some jurisdictions.
Disadvantages of Trading Shares
Trading carries significant risks, includingpotential capital loss, especially with leveraged positions. Success requiressubstantial knowledge and the ability to interpret market trends, which can bechallenging for newcomers. Markets are inherently unpredictable, and evenseasoned traders face the possibility of misjudging movements, making carefulrisk management essential for sustainable success.
