What is equity trading?
It is possible to buy and sell equities through an investment fund, such as an exchange traded fund (ETF). Equity funds invest in a range of shares in different companies. They diversify and spread the risk by investing in equities from different countries, regions and industries. By investing in shares this way, you are taking direct ownership of the underlying asset. This means that if the value of a stock rises, you make a profit. If the value of the stock falls, you make a loss. You also get the benefits of any dividend payouts.
As well as ETF trading, you can also trade the financial markets via spread bets and contracts for difference (CFDs). When share trading in this way, you don’t take direct ownership of the underlying instrument. Instead, you are taking a position on the price movements of that instrument. This is known as derivative trading. Spread bets and CFDs are both leveraged products, which means that you only need to deposit a percentage of the overall value of a trade to enter that trade. This deposit is known as margin. Profits and losses are based on the total value of the trade, not just the margin amount, so, it is possible to make larger profits, as well as larger losses.
An advantage of spread betting and CFD trading is that traders can make money from rising as well as falling markets. This is known as going long or short. The ability to take a short position in this way allows traders to hedge a physical share portfolio if it was losing money in the short term. This can be done by opening an opposite position in the same company’s shares as a spread bet or CFD.