Using stock market shares, whether to benefit from the dividends or speculate on the actual share price, is an increasingly popular activity which can also be highly profitable.
Of course, there is also a risk of loss present but, depending on how you buy and sell your shares, this risk can be lessened.
If you would like to know how to buy and sell the shares of large companies that are quoted directly online then here are some explanations that will interest you.
Buying shares to become a shareholder:
Many individuals and entities that buy stock market assets do so in order to become shareholders. This is the simplest use of shares and their main objective. In fact, when a company issues shares it is possible to acquire them directly online.
In all cases, for shares that are already quoted, it is necessary to buy them by passing through an intermediary that can be an online broker or an online bank.
Of course, it is equally possible to buy shares directly from sellers that have themselves previously bought shares in the same manner that you can resell your shares.
Buying and selling shares with banks online:
The simplest system for buying and selling shares is by passing through one of the placement products available through the banks, particularly the online banks. With the 100% online bank operations you can very simply pass your buy and sell orders directly via the internet without having to visit your bank branch.
The advantages of this system are numerous as it is your bank that is responsible for the execution of your orders including the buying and selling of your shares.
The only real disadvantage of this method concerns the fees that can be higher than those you would pay if you bought and sold shares yourself. However, these bank fees generally do not exceed 4%.
One of the major advantages of bank placement products is that your purchases and sales of shares are supervised by one of the specialist intermediaries of the share markets and therefore you can benefit from their advice.
Buying and selling shares with online brokers:
Another method is to call on the services of an online broker. Their function is similar to that of online banks with the difference that you do not generally benefit from individual accompaniment or advice, but the fees are less and it is you alone who decides which shares you wish to buy and sell.
These online brokers also enable you to trade in stock market shares, without actually having to own them outright. To do so you simply speculate on the movement in their price. The tools that enable you to do this are called CFDs.
To summarise, there are several methods for buying and selling shares on the internet. Before deciding which solution is right for you check carefully the fees charged, you should also ensure you have sufficient knowledge and understanding of the stock markets. According to these criteria, each of these two methods offers different advantages. It is also important to understand the quotation system for shares to be able to speculate profitably on this type of asset.
When is it judicious to purchase stock market shares?
Buying shares on the stock markets can prove to be profitable placements but not by buying just any share at any time. In fact, purchasing shares online is above all a strategic decision to take. So when should you purchase shares?
For capital shares, and for the composition of a stock market portfolio, it is preferable to buy shares of companies that have been quoted on the stock market for a long time so you can confidently assess the potential for each asset in terms of long term dividends. You can also choose to buy shares in innovative companies that issue their shares for the first time so you can share in their success, but this is considered as riskier.
Relating to online trading through the use of CFDs, the purchase of shares is above all a question of timing. You can actually access numerous international stock market assets through trading platforms online but you should only buy a particular asset if you believe that the price will increase over time, generally the long term. In this way you can make profits by reselling these assets at a higher price than the original purchase price.
Therefore we would recommend the purchase of stock market shares under the following market conditions:
- The share price is experiencing a strong and long lasting rising trend.
- A major event occurs or is about to occur that will influence the price of the share thereby leading to a price rise.
- The technical indicators announce the occurrence of a rising trend or a corrective rise during a falling trend.
- The activity sector relating to the share experiences a strong growth.
When is it judicious to sell shares on the stock markets?
Let us now look at selling shares on the stock markets. A sale can be made with the aim of recovering money to reinvest or simply to pocket the profits following a rise in value of the asset price.
In fact, if you hold some shares in your stock market portfolio that are providing disappointing dividends then it would be judicious to separate from them and add other, more profitable, shares. In this way you can sell your shares and pocket some profits as they will probably have increased in value since you originally acquired them.
Relating to shares that you trade through an online trading platform, things are a little more complex. You can of course resell the shares you have purchased but you can also sell an asset without ever really having purchased it. This method consists of speculating on the drop in the price of this asset.
CFDs offer the opportunity to invest through the purchase or sale price of the share on the stock markets, in this way you can profit from each opportunity even when the markets are falling. In this way you would sell your position when:
- Its price is stuck in a strong and long term falling trend.
- An event occurs or will occur with a strong possibility that it will lead to a fall or drop in the asset price.
- One or several technical indicators announces a strong drop or corrective drop on a share price.
- The activity sector related to the share price experiences a major economic crisis.
How long to keep your shares with a short term strategy?
If you are trading over the short or very short term then obviously you will not be keeping your shares for long. A Day Trading strategy for example entails the resale of your positions before the end of the trading session. Do not fix an overly high objective that you may not reach in the time frame and suffer the effects of a corrective drop before leaving the platform that you are using for your speculations.
If you are trading over several days then you should not keep your shares beyond the time it takes to achieve your realistic price objective, this should not be more than a few points higher. It is best to place a stop order at the right place to be sure that your position is closed at the right moment.
How long should you keep your shares in a long term strategy?
For strategies over the longer term, it is necessary that you take into account the possibility of corrective drops in the price of your shares. These micro-movements should not force the closure of your positions before you achieve your higher target price.
To summarise, you need to use both stop and limit orders, the latter should be placed sufficiently far away from your opening price to ensure that your position remains open in the case of a temporary correction. You should also ensure that you place enough funds in your trading account to cover this type of temporary drop.
When should you sell your shares?
Apart from achieving the objective that you are fixed upon there exist certain cases which should encourage you to sell your shares without hesitation.
For example, when the share price that you are following passes below a critical threshold thus indicating a strong drop it is best to wait no longer and close your position in order to prevent the risk of losing more of your money. These thresholds can be determined through the technical support levels observed on your charts.
In the same way, if you follow the economical events of a company in which you trade shares, certain publications can generate a risk and it can be best to sell your shares before they appear.
How much does it cost to buy or sell shares?
Yet again, to answer these questions it is essential that you define a trading strategy that you will adopt for buying and selling your shares.
If you hold a stock market share portfolio through a stock market placement product then each investment, either buying or selling, will require that you pay certain fees, called brokerage fees. These fees can take different forms and vary in cost according to the type of assets traded (and if it is through the national, international or European markets), the amount of the transaction completed, and of course your intermediary. They can be in the form of a fixed rate or a percentage of the transaction amount. It is therefore extremely important to carefully choose your stock market offer and your partner by taking the time to thoroughly collect information on the details of transaction fees applied to stock market orders.
For online trading the procedure is far simpler and the costs are generally less onerous. In fact, in reality, there are no real precise trading fees for the purchase and sale of stock market shares when using a trading platform with CFDs. Of course, the broker earns money but in a different way that is more transparent, they apply a ‘spread’.
A Spread is the slight difference between the real price of an asset and its purchase or sale price. Therefore, when you buy shares, the purchase price will be slightly above the real price of the share and when the transaction relates to a sale of shares then the sale price will be slightly lower than the real asset price.
There again, these spreads can vary from one broker to another and, depending on the type of shares that you wish to buy or sell, it can be beneficial to compare the different spreads used before opening your online trading account. The spreads can be fixed and not variable or be variable and change according to the market situation.
Which shares can be purchased and sold online?
Over recent years the offers from Forex brokers in terms of CFDs on shares has grown considerably and it is now possible to access a large number of assets from the trading platforms they have made available.
You will of course find numerous national, European and international shares available. All the shares available on these platforms are included on the major international stock market indices and are particularly popular and volatile; they therefore offer numerous possibilities with a precise strategy based on technical or fundamental data.
Share trading using CFDs
When trading shares through CFDs, you don’t really own the shares concerned.
Indeed, during the trading of the CFD, the investor only has to sign a contract with an intermediary with the aim of exchanging the difference between the starting value of the share and its value at the contract closure. This is why these contracts are called CFD, for ‘Contract For Difference’.
In addition to that, the CFDs generally offer a leverage effect so making it possible to increase the trading profitability of the shares on a short term basis. This leverage effect ranges between 5% and 10% of the share price.
CFD contracts are therefore trading tools offering the possibility to trade the shares without the need to actually possess them or buy them outright. However, the traders that invest in CFDs also receive dividends and fractions of shares in the same way as a traditional shareholder with the difference that he does not actually own a share of the emitting company.
The advantages of share trading with CFDs
As you have certainly understood, share trading online with CFDs offers many advantages. The investment is much less expensive for the trader who only pays an average of 10% of the traditional share price.
In addition, thanks to the leverage effect, he can expect a reasonably substantial profit in less time than one normally would within the framework of traditional trading.
But the CFDs can also be used with the aim of covering open positions on other markets.