Trading Concepts

Trading Stocks

Discover how you can trade on the price movements of major global stocks.

What are stocks?

Stocks are an expression of ownership in a company. Owning a stock means that you own a piece of that company and as such, you are entitled to your share of the company's profits as well as any voting rights attached to the stock. 

Companies sell stocks because they want to raise money, possibly to expand their business further. They can do this by taking out a loan or issuing bonds, or by selling part of the company, known as “issuing stock”.

Stockholders hope that after buying stock in that company, the company’s performance will improve and the stock will be worth more in the future. Because stocks provide their owners with a share in a company, they are also referred to as equities, or the equity market. This is to differentiate them from bonds, which are also issued by companies, but do not provide equity.

Trading stocks

When a company’s stock is first issued, it’s called an Initial Public Offering (IPO). Markets often get excited by IPOs as this represents the first time a stock is listed on the market. Stocks are sold initially via subscription, where investors can apply for them. After that, they can be bought and sold on the stock market as usual on a stock exchange.  

Stocks can be bought or sold on a stock exchange via a broker. Well known stock exchanges include the New York Stock Exchange (NYSE), London Stock Exchange (LSE), and the NASDAQ.

Did you know?

Not all big companies are listed on a stock exchange, and there are some very large and famous household brands that are still privately owned. In addition, some bigger companies only list a portion of their stocks on an exchange, while the rest is kept in private hands or owned by governments. The listed portion is called the free float.

Dividends

Stocks pay out dividends to their owners. This is usually done on a regular basis, such as quarterly. It represents a share of the company’s profits being paid back to its ultimate owners, the stockholders. Companies are not obligated to pay dividends, but many do so regularly, which means their stock is also prized because of its income potential.

Corporate actions

The life of a big company is often not a smooth one, and there are several important events that affect the price of its stock, which traders and investors need to be aware of:
  • Mergers between companies or the acquisition of one company by another
  • Executive dealings – when executives buy or sell their own stock in their company
  • Rights issues – issuing more stocks to the market to raise more money
  • Stock buy-backs – when a company starts buying back its own stocks, reducing the number of its stocks available on the market
  • Special dividend – a dividend paid out by companies when they are feeling particularly liquid, not a regular dividend
  • Stock split – a company splits its stock into smaller ones, frequently because it’s becoming too expensive, which can limit trading

Who trades stocks?

Stocks can be bought and sold openly by individual traders through a stock exchange using a broker. However, many stocks are bought by financial institutions such as banks, retirement funds, and institutional investors.

What affects the price of a stock?

The price of a stock can be influenced by many things including:

  • Earnings
    Earnings are the profits a company makes and must report on a regular basis. Investors look at a company’s earnings to see whether they are better or worse than expected
  • News about a company
    News about new products, changes in management, or a change in strategy can all affect the stock price
  • News on external factors
    News regarding the company’s industry, competitors, and trading conditions can all affect the supply and demand, and therefore price of that stock

Trading on stocks with FOREX.com

  • FOREX.com allows its customers to trade on the price movements of over 220 stocks as contracts for difference (CFDs)
  • CFDs allow trading without the costs of owning the actual underlying stock