What moves the share price?
Before you place your first trade, you need to know the main factors that will impact the share price.
Company earnings reports
Listed companies must issue regular earnings reports that declare their financial performance. Most companies release quarterly reports with an in-depth report once a year.
Earning reports give a good indication on the state of a company and whether they are on the right track.
Supply and demand
If a stock is considered a good buy by many investors and analysts, then it will drive up the share price as there is big demand and only limited supply.
Equally, if a stock is considered a poor investment, then the share price will fall as there is little demand and excess supply.
However, note that market sentiment is not always correct. Sometimes widely held assumptions about a share can be wrong. The dot.com bubble in the early 2000s where various internet companies were grossly overvalued is testament to that.
The company board
If a company hires a new, trailblazing CEO then the investors are likely to react positively.
Conversely, if a senior person leaves under a cloud then this will have a negative reaction. For example, in November 2020 McDonalds fired its CEO Steve Easterbrook for having a relationship with a subordinate. As a result, McDonalds shares dropped 3%, losing $4 billion in value.
Share prices can be affected by a wide range of economic, industry and political events:
- New product launches
- Industry news
- Competitor outlook
- Environmental disasters
- Political events
- GDP figures
High interest rates makes other safer investments such as bonds more appealing. This is because the higher interest rates give bonds a higher rate of return and are guaranteed by the government.
If interest rates are low, then investors will seek better rates of return by investing in shares.
Market capitalisation is a measure of a company's worth. It's a term you will come across often when trading shares.
It is calculated by the number of outstanding shares x the share price
For example, if a company issue 5 million shares at $100 each, then its market capitalisation would be $500 million.
(Shares outstanding refers to the total number of shares issued)
Companies are also commonly categorised by their market capitalisation size:
- Large-cap - $10 billion + (Apple, Procter & Gamble, Barclays)
- Mid-cap - $2-10 billion (Pelaton Interactive, Crocs, Games Workshop)
- Small-cap - $250 million -$2 billion (Saga, Tullow Oil, Stobart Group)
How do I trade shares
At FOREX.com, you can trade share CFDs. This means you are speculating on the price of share without ever actually owning it.
Trading share CFDs means you can go long or short, and take advantage of leverage. Leverage means you only have to put up a fraction of the trade size in order to trade it.
Please be aware that leverage can magnify your wins, but it can also magnify your losses. It is highly recommended that you understand this concept before you start trading.
How to trade a stock
This example shows the steps to trade Barclays shares.
You hear news that Barclays bank is set to announce strong profits. You also read multiple articles that say Barclays has strong leadership and is winning customers from rival banks.
You decide to buy Barclays shares.
To place your trade:
- Log into the FOREX.com web platform
- Type ‘Barclays’ into the top left search bar
- Choose ‘Barclays (UK) CFD’
Already you can see the ‘SELL’ and ‘BUY’ buttons in the top right of the screen. Selecting either of these will open the deal ticket and enable you to choose how much you want to trade.
But first, we will select ‘Market 360’. This will give you all the information about Barclays – from charting tools, news and the commission fee (0.08% with a minimum of £10) in one convenient place.
To buy Barclays, select the green ‘Buy’ button. This will open the deal ticket.
In the quantity section, you enter how many CFDs you want to buy.
You enter 100.
The point value section shows a value of £1 (1 CFD = 1 penny). This means you will earn £1 for every point the share price increases, and lose £1 for every point the share price falls.
Select ‘Place Trade’
Congratulations. You bought 100 Barclays CFDs at 137.50
You were charged a commission of £10
Your intuition proves more than correct. Ten days later Barclays announce record profits and the share price jumps 20 points to 157.5.
You decide it’s time to close your trade and take your profit.
- Log into the FOREX.com web platform
- Select the ‘Default Workspace’ tab
- Choose ‘Close’ in the ‘Positions’ subtab
This will launch the deal ticket.
As you can see, the deal ticket shows that if you close the trade now, you will make a profit of £20 (£10 profit if you take into account the £10 commission fee).
To close your trade, simply select ‘Close Position’.
However, no trader gets it right every time. Barclays could’ve released worse results than expected and dropped 20 points to 117.50.
In this instance, you would have made a loss of £20 (£30 loss if you take into account the £10 commission fee).
There’s more to learn about shares in our Trading Academy