The equity markets are a major piece of the global capital markets, providing investors with the opportunity to generate risk based on an individual company’s performance. When you purchase a share of a company, you own a stake in the profits produced by that company. To generate the price of a stock, investors add a multiple to the earnings per share. Stock prices can generate opportunities from either capital appreciation or dividends.. A dividend is a payment from the company to its investors for holding an equity stake.
How can you take advantage of the market?
There are several strategies that you can use to take advantage of share trading. The most popular is directional trading where investors speculate on the future direction of a stock price. You can use fundamental analysis, technical analysis or different types of statistical analysis to determine which was the price will move. If you receive a dividend, and the price of the stock remains stable, you can earn a stable yield from a dividend producing stock.
If you goal is to take advantage of directional changes to shares, you can use a financial instrument called a CFD to speculate on the future direction of a stock. CFDs, provide leverage and track the underlying movements of individual shares. In many cases, if you use CFDs for online share trading, you will only need to post collateral of 10%.
If you are trading shares, you need to pay attention to specific information that could move the stock price. On a quarterly basis, public companies generally release their financial information which includes earnings, revenues and future guidance. All this information can be market moving especially if its unexpected. Prior to the release of financial information, analysts will forecast their estimate of what a company will make. If the actual release is substantially different from what analysts had forecast, the price of a stock could move sharply.
Upgrades and Downgrades
Another piece of market moving information are upgrades and downgrades. Analysts will provide to their clients their view of a company as well as a forecast for the stock price of each company. When an analyst changes either their position on whether you should buy, hold or sell a share, or their target price of the share, they will announce that information. When changes are drastic and the analyst is well respected, the price of the stock could move sharply.
Equities provide investors with an opportunity to take individual company risk. New information such as an earnings release or a change in an analysts rating could drastically alter the price of a stock. Stock are considered riskier asset and the volatility of individual shares is larger than the volatility you would experience with currencies or commodities. If you are looking to trade shares in a directional manner, you can trade CFDs which will provide you with a leveraged financial instrument, which can enhance your trading opportunities.