Firstly, you can buy shares 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 money. If the value of the stock falls, you lose money. You also get the benefits of any dividend payouts.
As well as ETF trading, you can also trade the financial markets via 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. CFDs is a leveraged product, 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. Remember that both profits and losses will be magnified, and for retail clients you could lose up to the amount of your deposit.
An advantage of 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 go short 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 CFD.
Traders can speculate on a wide range of financial markets across asset classes such as commodities, indices, foreign exchange, shares, treasuries and cryptocurrencies. Every country has its own stock exchange (organised market), where shares of listed companies are bought and sold.