Stock markets and equity trading
Share trading is one of the most popular financial instruments and both stock trading and equity trading refer to the types of ownership an investor can have in companies. Investors in companies are also referred to as a shareholder and can have any percentage of ownership in that particular company. However, there is a difference between stock trading and equity trading which we will explore below. Primarily the difference between the two boils down to the total amount of ownership stake. Equities mean total ownership of the stake of a company while stocks and shares refer to a unit of ownership. If you like to know more about how you can start trading shares with Eightcap then please take a look at our Share CFDs.
What is Equity trading?
Equity traders will have some ownership in a particular company in the hopes of it benefiting them based on the company’s future performance. The company also benefits from this as it will have access to capital to use to expand and grow its business. Both private and public stocks are traded on the equities market and traded through dealers (over the counter market). A sale on the equity market happens if the buy and ask price match. Sellers will offer a certain price and sellers will want to sell at a specific price which could lead to bidding on the same stock. In this case, the sale of the stock goes to the first trader who placed the bid. Market value is a term used to describe the buyer paying any price for the stock and the seller who will take any price.
As mentioned above, a company who sells its stocks does so in order to gain more capital so that it can expand its business. When a company’s stocks are offered on the financial markets it is a publicly-traded company. When a company grows and its revenues increase, investors will also profit as the value of stocks on the market will also rise. However, when a company isn’t doing well the stock value could also fall to reflect this.
What is a Stockbroker?
Retail traders will need a stockbroker in order to buy and sell stocks on their behalf. There are two types of stockbrokers; an advisory broker who will provide investment advice to their clients and the second is a non-advisory broker, who will simply execute trades according to their client’s requests. The stockbroker will have access to exchanges where securities are bought and sold, retail customers will not have access to major exchanges without using the services of a stockbroker. A stockbroker will have to meet various requirements in order to operate within a certain country, these requirements are normally upheld by the country’s financial regulator.
If you pick a broker that operates on a non-advisory broker there are three main considerations before you open a position. You will need to consider the price you are prepared to pay for a stock, how many shares are available at the price you are prepared to pay and the type of order. The type of order includes a ‘limit order’, where a price is set and a ‘market order’ where your trade is executed at the best possible price. Limit orders allow traders to be more specific with the price that they want to want to pay compared to the market order which is the price arranged by your broker. When trading with a non-advisory broker, it is important to remember that you are ultimately responsible for any profits or losses made.
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