Share trading is the buying and selling of company stock with the aim of making a profit. It allows you to obtain legal ownership in a specific company. Once you have shares in a company you own part of the underlying asset. This means you can receive company dividends and are able to vote in company meetings.
When you buy or sell shares, the trader enters into a contract to exchange the legal ownership of the shares for money. This exchange is called ‘settlement’ and usually occurs two business days after the trade takes place. You can purchase shares through a broker, using individually-held electronic funds or leverage your share trading using a margin loan from a margin loan provider.
A CMC Markets stockbroking account enables you to easily and efficiently access the direct share market. It includes competitive online brokerage, order processing in less than a second, and unlimited free conditional orders for all clients. Our stockbroking platforms also gives you access to in-built fundamental research and risk analysis tools.
Shares are units of ownership in individual companies. Owning shares entitles the holder to a proportion of the companies’ profits. When you share trade, profits come from increases in the value of company shares and the payment of dividends to shareholders, and these are based on company performance.
Investors have seen the stock market offer better long-term returns than many other investments. With low minimum investments, you don’t need significant capital to get started and there are thousands of companies across a wide range of market sectors for you to choose from.
The main differences between investing and share trading are the amount of time involved and level of risk undertaken. Investing focuses on the long term and investors tend to adopt a buy and hold approach. The idea is to gradually build up wealth over a longer period of time. Wealth is generated through buying and taking ownership of shares.
Investors will generally research the underlying company before buying shares. They try to determine the wealth prospect of shares in the medium to long term. Investments are often held for a period of years, or longer.
Market conditions may fluctuate over time , but this has less of an impact on long-term investing. It is generally considered to be lower risk than trading. This is because the expectation is that any downtrend will rebound and losses will be recovered.
Share trading, on the other hand, focuses on the short term. It involves the frequent buying and selling of financial instruments. The aim is to take advantage of quick price movements in the stock market to make a profit. Very often traders will hold stocks for less than a day, a type of trading known as day trading. Trading can have higher potential returns than investing.
However, it is also higher risk because there can be sudden, sharp price movements in the market. Traders generally tend to analyse a share’s current trend in the market using a range of trading and analysis tools. Numerous trading platforms these days offer technical analysis tools to help you refine your share trading strategy.
ASX Listed Securities
Choose from an extensive selection of Australian shares. There are over 2200 companies listed on the Australian Securities Exchange (ASX), covering most sectors of the Australian economy including financial services, industrials and healthcare. Use the integrated technical and fundamental research available on our share trading platform to identify opportunities and build a diversified investment portfolio.
SSX Listed Securities
We were the first accredited broker to offer our clients shares through the Sydney Stock Exchange (SSX). Via the SSX, CMC Markets Stockbroking clients have the opportunity to invest in growth-oriented companies across Australia and Asia. Note that trading SSX shares is limited to phone trading.
When you buy or sell shares, warrants, ETFs and other listed instruments through a CMC Markets share trading account, you enter a contract to exchange the legal ownership of those instruments for money – this exchange is called 'settlement'. In today’s market, standard settlement occurs two business days (T+2) after a trade takes place.
The risks of share trading depend on your method of trading. If you are buying, holding or selling shares outright, then the most obvious risk is that the shares can depreciate in value. Small losses in value will often balance out over time, but it’s possible for share prices to crash, or for a company in which you own shares to go out of business.
Stock market crashes are also possible. For example, in 2008, the FTSE 100 nearly halved in value in just a few weeks. Instances like this are generally related to the overall economic outlook.
What you invest in can also have an impact on your overall risk. It’s important to diversify your portfolio. For example, if you invested in the shares of three different energy companies, you are limiting yourself to one sector. If anything impacts on the value of that sector, it’s likely all your shares would be affected. Traders often prefer, therefore, to invest across different sectors to prevent this from happening.
Established companies are also likely to be lower risk than new, unestablished start-ups. Although obviously this cannot be guaranteed.
If you are using derivative products such as spread bets or CFDs, then your risks will be slightly different. Spread bets and CFDs are leveraged products. This means you get greater market exposure with a smaller outlay of capital. However, profits and losses will both be based on the full value of any trade. It’s possible to lose all of your capital.