The Truth About Share Trading – Separating Fact From Fiction
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What is Share Trading?
Share trading involves purchasing and selling shares of public companies through a share market (also called a stock exchange). Companies may issue new shares to raise capital through an initial public offering (IPO). Demand and supply determines the price of each share; when investors anticipate higher profits this drives demand up while negative sentiment prompts sales leading to decreased prices.
Traders may either be long-term investors who hold shares for several years or short-term traders who purchase and sell shares more frequently over a shorter timeframe, taking advantage of market fluctuations to make profits. Short-term traders are sometimes known as day traders; typically trading within one day or over several days and closing positions each evening.
Margin buying allows traders to increase their buying power, which requires them to put up a percentage of the value of shares they purchase as collateral. This practice is regulated in most industrialised nations to prevent excessive speculation and protect individual traders from financial ruin. When selling shares, traders can either reinvest the proceeds or withdraw it as a cash dividend depending on which company issued it.
How Does Share Trading Work?
A share trading market is an aggregation of buyers and sellers of equity shares which represent ownership claims on businesses. They may be publicly traded shares on stock exchanges or privately sold through equity crowdfunding platforms; traders usually buy low and sell high in order to generate profits; although more experienced traders may attempt to outstrip the market using techniques like short selling and arbitrage; this approach often costs too much and fails.
When your shareholding company makes a profit, they will usually distribute that income as dividends – these dividends may be fully-franked, partially-franked or unfranked depending on your preference and some companies even provide franking credits that reduce tax obligations associated with this income.
Trading shares is accomplished by contacting your broker and placing a buy or sell order. A fee will usually be assessed per trade transaction – usually calculated as a percentage of its total value; some brokers charge higher fees for smaller trades or certain shares with less liquidity (i.e. those less likely to trade).
Some stocks are popular among traders due to their historical performance, liquidity or size; for instance, electric vehicle and renewable energy stocks have gained in popularity due to an increasing societal focus on sustainability. Others can serve as general market barometers such as oil and gas stocks which can be heavily impacted by global oil and gas prices and geopolitical events.
Are Shares a Good Investment?
There are varying opinions regarding whether shares make an effective investment. Some investors view shares as an ideal way of diversifying a long-term portfolio with large companies; others suggest short-selling and arbitrage techniques as ways to gain maximum returns from trading short term.
No matter your opinion on investing, it is crucial to remember that share prices can fluctuate rapidly; only invest money you can afford to lose. Furthermore, holding on for at least 12 months could qualify you for franking credits, which offset tax payments otherwise required on dividends received.
Consider that trading can become very expensive if done on unsuitable terms and fees; so it is vital that you locate a broker with reasonable terms and fees (some brokers charge flat transaction fees while others calculate them as a percentage of each trade’s value) – our find a broker tool can help you locate brokers that suit your needs!
When buying or selling shares, ownership claims with the company change hands at the point of sale and legal title to your shares transfers to new ownership at that moment. Settlement usually occurs two business days post trade (known as T+2) when either buyer or seller receive their proceeds of the trade.
Are Shares a Bad Investment?
Shares represent ownership claims on businesses and are traded on stock exchanges. Their value is determined by supply and demand; when investors expect more profit from a company, more investors will buy shares, driving up its price; conversely if there is negative sentiment surrounding it, investors may sell and reduce its price accordingly. Unfortunately share prices can fluctuate quite quickly between rise and fall periods, creating price volatility and making market predictions inaccurate.
Investors strive to maximize returns by buying low and selling high. Unfortunately, this strategy isn’t foolproof and relies heavily on market timing – many traders rely on media coverage or events such as market halts to attempt to predict price movements while others combine insight with discipline in order to exceed market average returns. Market timing can also lead to unethical practices such as insider trading, embezzlement or pump-and-dump strategies that can jeopardise an investor’s returns.
Dividends can also help investors and traders profit from shares. Certain companies attach franking credits to their dividends which reduce your tax obligation on income from investing or trading shares, so it is wise to seek independent advice about any tax implications before investing or trading shares – an excellent place to begin researching this topic is ATO website or seeking professional guidance from licensed financial advisers.
