What Are Shares?

You've likely heard the terms "stock" or "shares" whether you're deeply involved in the financial world or not. These terms often surface in news reports about top-trading companies or those experiencing significant losses. They also pop up in popular culture, perhaps during a blockbuster movie with scenes set on Wall Street discussing the ups and downs of the stock market. While many are familiar with the concept of stocks or shares, not everyone stops to consider what they actually represent, how they function, and their implications.

Stocks, or shares, represent units of ownership in a company. Individuals who own stocks are referred to as stockholders or shareholders. Owning shares entitles shareholders to a portion of the company's assets and earnings, proportionate to the amount of shares they own. Stocks are typically bought and sold on stock exchanges.

Beyond direct stock investments, traders can engage with the market through Stock Contracts for Difference (CFDs) offered by Qintacapital. Unlike traditional stock investments, Stock CFDs do not confer ownership of the stock itself. Instead, they offer a way to speculate on the future direction of a stock’s price, providing opportunities to profit even in declining markets. CFDs involve settling the difference in price between when a contract is opened and closed. Opting for CFDs on shares allows traders to leverage their positions, potentially amplifying gains from a smaller initial capital outlay and granting access to a broader range of financial markets. However, it's crucial to recognize that while leverage can increase potential returns, it also increases potential risks, magnifying both gains and losses. You can learn more about the intricacies of CFD trading with Qintacapital here.

Both share trading and contracts for difference present strategies to capitalize on financial market fluctuations and can be integral components of a diversified investment portfolio.

Trading Shares with CFDs

The share market offers several pathways for investment, including direct ownership of stocks (Cash Equities) and various derivatives such as Contracts for Difference (CFDs). In recent years, CFDs have surged in popularity. Trading stock CFDs allows investors to engage with the price movements of stocks without actually owning the underlying assets. Essentially, a CFD is a contract between the trader and the provider (such as Qintacapital) to exchange the difference in the price of a stock from when the contract is opened to when it is closed. This type of investment is classified as a financial derivative since its value is dependent on the underlying stock's price.

CFDs have democratized access to the stock markets, thanks to their ease of access and lower relative costs, sparking increased interest and a greater focus on stock trading.

When engaging in CFD trading, it is critical to choose a reputable and regulated provider like Qintacapital. This choice guarantees transparency in pricing and transactions, along with robust client money protection measures. A regulated provider also ensures that traders are fully informed of the risks involved and are protected from misleading promises such as get-rich-quick schemes.

Trading Stocks vs. Trading Stocks CFDs

With CFDs, you trade with leverage. This means you can gain greater exposure to the underlying asset with less capital. Your total exposure compared to your margin is referred to as the leverage ratio. However, whereas your initial investment is lower, your total profits and losses are calculated at full position value. Therefore, leverage also implies greater risks and losses.

• CFD traders do not own the underlying asset over which the CFD is based, as opposed to buying shares. When holding shares, you generally have additional rights, such as voting rights and dividends.

• CFDs provide you with the opportunity to profit in both rising and falling markets - you can open a Buy position if you think the price will go up, and a Sell position if you expect the price to decrease.

• When you trade CFDs, you can easily access shares from several markets all over the world, as well as other instruments from the same account. This can make it easier to diversify your portfolio.

• With CFDs, you can place orders to either open or close positions at the rates you choose.

• When CFD positions are left open overnight, an overnight fee is charged. This makes CFD trading less suitable for long term positions.

• Opening a CFD trading account is usually faster than opening a traditional brokerage account.

• CFD trading is generally used for shorter-term trading during events such as earnings announcements. Share trading is most often used for building portfolios.

• Since CFDs reflect the underlying market, shares in the stock market and CFDs are traded much in the same way. The price a CFD provider would be willing to buy or sell a CFD at is derived from the price the stock is traded on the relevant exchange and in terms of notional value, one share is equivalent to one share CFD.

In short, trading CFDs on stocks and investing are two different things. Whereas the former is usually done in hopes of making gains in the short term, the latter is done by investors who hope to make gains in the longer run. Nonetheless, both trading CFDs and investing in stocks can provide opportunities. Therefore, whether you want to invest in stocks or trade stocks CFDs depends on your goal and financial vision.

What Determines Share Prices?

Generally speaking, the price of a company's shares will constantly fluctuate and is influenced by the company’s performance and profitability, as well as the general market and public sentiment towards the company. Traders and investors who want to better understand the stock market and make wiser decisions when picking stocks should also be aware of a few other specific factors that can affect the shares’ prices. Accordingly, the below factors can help you understand the stock market better. Traders and investors who want to better understand the stock market and make wiser decisions when picking stocks should also be aware of a few other specific factors that can affect the shares’ prices. Accordingly, the below factors can help you understand the stock market better.

Supply and Demand

The main factor that determines the price of a share is supply and demand. As the terms suggest, supply refers to the availability of the particular share, and demand is the desire for it. Low supply and high demand raise the price of a share, while high supply and low demand lower it.

When news and reports show good performance of a company or forecast growth in its sector, demand for its shares grows and the stock price rises accordingly. On the other hand, negative news and forecasts will cause the demand to decline; investors would be less likely to buy shares and more likely to sell them off, which would, in turn, increase the supply of the share in the market and lower the price accordingly.

Economics

Share prices tend to rise during economic booms and tend to fall during recessions. Interest rates also affect share prices. In lower interest rate environments, investors will generally look for better returns in higher-risk assets. This generally leads to greater inflows into the equity markets. Conversely, when interest rates are higher, investors will take the higher rates on offer because of the lower risk involved. This tends to lead to lower demand for equities. In addition, inflation is considered to affect a company’s buying and spending power, as well as that of its customers, and therefore, may cause their prices to move accordingly.

What Are Blue Chip Stocks?

While generally stocks tend to underperform during times of economic turbulence and high inflation, there are stocks that historically have preserved their value or have increased in value. These types of stocks are called blue-chip stocks and they are stocks of companies that are known for their financial stability and reputation. Prominent examples of blue-chip stocks are McDonald’s, Coca-Cola, and Disney all of which are available at FXTRADING. Nonetheless, past performance is not always indicative of future performance, this is why traders should keep in mind that even blue-chip stocks can underperform in certain economic conditions.

Politics and Stock Prices

Political factors significantly influence stock prices, as the business environment is deeply intertwined with governmental actions. Politics directly impacts international relations, regulations, monetary and fiscal policies, lawmaking, taxation, and various other economic facets. These elements, in turn, affect a company's operational capabilities, including the cost of raw materials, marketing strategies, and distribution processes. For instance, the sanctions imposed on Russia by the US and European nations following Russia's invasion of Ukraine in February 2022 had notable repercussions on global stock markets. A prime example is British energy giant BP, which saw its share prices fall significantly due to its stake in the Russian company, Rosneft, showcasing how geopolitical tensions can drastically influence share values.

Analyzing Share Prices

For traders interested in a deeper understanding of share price mechanisms, technical and fundamental analysis provide two critical approaches for evaluating potential investments:

Technical Analysis: This method relies on historical price data and identifiable patterns to predict future price movements. Although past price behavior can offer useful insights, it's important to remember that financial markets are inherently volatile, and past performance is not always indicative of future outcomes.

Fundamental Analysis: This approach examines a company’s financial statements and relevant external factors in detail. It is commonly used to assess the intrinsic value of a stock and anticipate price trends by analyzing metrics such as Return on Equity (ROE), Price-Earnings Ratio (P/E), and Relative Dividend Yield. Fundamental analysis helps investors understand the underlying value and potential of a stock, beyond the immediate market fluctuations.

Stock Market Trading Tips

Navigating the stock market can be both challenging and rewarding. To maximize your success and minimize poor decisions, it's crucial to follow some fundamental guidelines. Here are essential steps every trader should consider before engaging in stock market trading:

Research the Product Thorough research is vital whether you're trading stock CFDs or purchasing stocks directly from the stock market. Utilize tools such as economic calendars, trading indicators, and advanced charting provided by platforms like Qintacapital, where we offer extensive resources for trading stock CFDs. Staying current with the latest news and market trends is also crucial; Qintacapital’s free News and Market Insights articles can help. Market sentiment can change swiftly, and being able to adapt requires keen perception and intuition, skills honed by staying informed and understanding market impacts.

Understand Different Order Types Familiarity with the various types of trading orders is fundamental. On the Qintacapital platform, you can place market orders, future orders (pending orders), and stop orders. A market order executes at the current market price. Future orders allow you to open a position at a predetermined price. Additionally, you can manually close positions or set stops to automatically close them. For instance, a limit stop (close at profit) will close your trade at a predetermined rate to lock in profits. Conversely, a stop loss (close at loss) aims to minimize losses by closing the position once the market reaches or surpasses a specified rate. Note that stops might not execute at the exact rate due to slippage, but they are essential risk management tools. Qintacapital also offers a guaranteed stop order for certain instruments, ensuring closure at the specified rate, albeit with a fee.

Diversify Your Portfolio Diversification is key to managing risk effectively. By spreading your investments across various asset types and within asset classes, you reduce risk by not putting all your capital into one investment. For example, beyond just trading stock CFDs, consider diversifying into Cryptocurrency CFDs, Commodity CFDs, and Index CFDs. Within an asset class, rather than investing only in one company, invest in multiple companies across different sectors and sizes.

Diversification not only broadens your exposure but also cushions against significant losses, allowing for a more stable investment experience. Decide which diversification strategy suits your trading style and always maintain a flexible approach to your investment portfolio.