How to buy and trade shares
The stock market is full of opportunities for every trader, with over 10,000 stocks and ETFs to choose from at IG. Regardless of your level of experience, follow this step-by-step guide to start buying and trading stocks.
Learn how the stock market works
The stock market works the same way an auction works — buyers and sellers negotiate an appropriate price for an asset, in this case company stock.
Companies that want to raise capital will be put up for public subscription through a process known as an initial public offering (IPO). Once the shares of these companies are listed, individual and institutional investors can start trading them.
Individuals who believe that the company will experience strong growth buy the stock in the hope that the price will be low so that they can make a profit when selling it later. Individuals who think the company will be in trouble may sell their shares in order to make as much profit as possible on their shares or limit losses.
You have to be registered to trade directly on the exchange, so most people turn to a stock broker. In the case of leveraged trading, your provider will replace the broker - opening and closing positions according to your instructions. Today, most retail stocks are traded through online trading platforms.
What drives the stock price?
Initially, the company will set the price at which it will be listed on the stock exchange - the IPO price. After that, the stock price fluctuates due to changes in supply and demand for the stock. The supply of company stock is always limited. The company can decide to issue more shares, or buy back shares from investors to reduce supply, but the number of shares outstanding is always known.
If there are more buyers than sellers in the market, demand will rise and stock prices will rise. However, if there are more sellers in the market, which indicates lower demand, the stock price will fall. The demand for stocks fluctuates over time for a number of reasons, including:
earnings report. Companies typically release interim reports on financial results on a quarterly basis and full reports annually. These reports affect a company's stock price as traders and investors use numbers including revenue, earnings, and dividend yield (EPS) as part of their fundamental analysis.
Macroeconomic data. The economic conditions in which the company operates will affect its growth. Data releases such as GDP and retail sales can have a significant impact on corporate stock prices - strong data can cause stock prices to rise, while weaker data can cause stock prices to fall.
interest rate. If interest rates are high, people will not need to take that much risk to get a good return, but they can save, which can reduce investment in the stock market. So if the central bank is likely to raise interest rates, the demand for stocks may fall
market sentiment.
Stock price movements are not always based on fundamental analysis. The view of the general public, as well as market participants, of a particular stock can also cause demand to fluctuate. Thus speculative bubbles are formed