If you’ve been eyeing the financial markets for a while now, you’ve probably come across the terms ‘stock,’ ‘stock market,’ and ‘stock trading.’ Financial markets include any marketplace where securities are traded, and the stock market is just one type of financial market. It’s where stock trading — the buying and selling of shares in a particular company — takes place.
As a first step to understanding how the stock market and stock trading work, let’s first answer the question, ‘What are stocks?’
Defining stocks
A stock, also known as equity, is a type of investment that represents a share or partial ownership of a company. If you buy stocks in a corporation, you become a shareholder, and you get a dividend of the corporation’s profits based on the amount of stock you own. Dividends may be paid in cash or in more stock.
Corporations sell stocks to raise capital for operating their businesses. A stock market exchange is where these public corporations sell their stocks. Stocks are generally expected to appreciate in value over time, especially if the company has shown continuous growth and stability. This is the main reason why investors buy stocks — to build their wealth.
Whenever a company’s stock value rises, stockholders can sell the stock they previously purchased, at a profit. And, essentially, this is how stock trading works.
The stock market
Stock trading takes place in the stock market. The stock market acts as a commercial hub for purchases of stocks and mutual funds. It’s open to everyone, which means you get to be among other people who invest in the stock market. How it operates is pretty straightforward — it lets buyers and sellers negotiate prices and make trades.
The stock market works through a network of exchanges like Nasdaq and the New York Stock Exchange, for example. It is in these exchanges that companies list shares of their stocks that can be bought.
The value of each stock is highly dependent on its supply and demand. As the laws of supply and demand dictate, if there are more buyers (demand) than sellers (supply) for a specific stock, the value of that stock will go up. If more sellers are active in the market than buyers, the stock’s value will decrease.
With the dependence on supply and demand, it’s logical to conclude that the stock market is highly volatile. As with any volatile market, trading on the stock market has its risks. One way to work around the risks is to spend time researching which stocks to trade in and when to trade them.
Trading CFDs on stocks
As a result of the market’s volatility, trading in the stock market comes with risks that can make you hesitant to start. If you want to learn the ropes without jumping in head-first, you can try trading CFDs on stocks first.
With CFD trading, you can trade on the price movement of any financial market without actually owning the underlying asset. Traders predict whether a particular asset’s price will rise or fall.
If you think the asset price will go up, you can buy a CFD and gain a profit from the rise. This is called ‘going long’. If you think the price of an underlying asset will go down, you can sell a CFD and profit from the fall. This is called ‘going short’.
The more the market moves in your favour, the more profit you make. But, it’s also possible that your predictions may move against you, which would result in potential loss.
Where to trade CFDs on stocks
On Deriv, you have the option to choose from two reliable platforms where you can trade CFDs on stocks — Deriv X, and Deriv MT5 (DMT5).
Deriv X is a multi-asset trading platform that offers CFDs on stocks and other assets, including forex, commodities, cryptocurrencies, and synthetic indices. It provides a versatile trading environment that you can customise to suit your preference. You can drag and drop widgets, create your layouts, and its intuitive tools and feature-rich charts let you get the info you need at your fingertips.
Deriv MT5 is an all-in-one CFD trading platform where you can access innovative trade types such as margin trading. It’s considered the most popular trading platform to date as it boasts advanced financial trading functions and superior technical and fundamental analysis tools. What makes DMT5 stand out more than other trading platforms is that it allows you to trade automatically by using robots and trading signals.
DMT5 and Deriv X are both multi-asset platforms, letting you trade not only CFDs on stocks, but other instruments as well. You get to enjoy high leverage and low spreads to increase your potential gains when the market moves in your favour.
Practise your trading skills and strategies with a free Deriv demo account. The demo account comes preloaded with 10,000 USD virtual money so that you can trade risk-free.
Disclaimer:
Deriv X is unavailable for clients residing within the EU.