Get started with stock trading
Stocks represent a fraction of ownership of a company, and they’re issued by businesses to raise capital for growth.
You can trade stocks in two ways:
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The traditional way to trade stocks is through buying and selling. The aim is to buy a stock and sell it at the right time to profit from a potential rise in price. Buying a physical stock gives you full ownership, meaning as a stockholder, you literally own a piece of the company. Pretty cool, huh?
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You can also trade stock contract for differences (CFDs). CFDs involve trading on margin and speculating on price movements of a stock, whether that’s upwards or downwards (in other words, going ‘long’ or ‘short’).
Fun fact: Eurotrader offers zero commission on stocks!
The stock market explained
The Netherlands is known for a number of things: its canals, colourful tulips, traditional handmade wooden clogs, and the fact that it has more bicycles than residents.
What you probably don’t know about the Netherlands – yet – is that the first modern exchange was created in Amsterdam, the country’s capital, back in 1611.
Since then, almost every developed country has had one or more stock exchanges, while more than 100,000 companies are traded publicly worldwide.
So, what exactly is a stock market? A stock market is where stocks are electronically bought and sold by individual and institutional investors through major stock indices.
As with many assets, supply and demand are one of the forces that move stock prices. As well as fundamental factors, technical factors (such as inflation, liquidity, trends, news or market sentiment) may impact stock prices. The impact of some of these factors is easier to quantify, while other factors cannot even be predicted.
Some other factors are specific to each stock and include the company’s financial health, innovation levels, price and valuation.
Trading stock CFDs
As attractive as company ownership might be, the upfront capital needed to buy stocks can be a financial barrier for many traders. Stock CFDs, however, are a more accessible alternative (though CFD trading does come with its own risks!).
With CFD trading, you never actually own the underlying asset (so if you’re trading a stock CFD, you won’t actually own the stock itself). Instead, CFDs allow you to speculate on the price movements of stocks (i.e., whether they’ll go up or down in value).
Many traders like CFDs because they allow you to take positions on both bull and bear markets, adding even greater flexibility to your trading strategy. It’s also a great way to diversify your portfolio!
A key feature of CFD trading is that it is leveraged. This means that you only need to put down a fraction of the trade’s full value to open a position for one share. For example, at 5:1 leverage, you will only need 20% of the price of the share to open a position.
Traders can make or lose money from speculating on stocks over a shorter timeframe by focusing on technical patterns, using methods such as scalping and day trading. Traders can monitor the stock’s performance along with their entry and exit prices.
Definitions
CFDs
Contract for differences (CFDs) are trading contracts that allow the trader to speculate on the rise or fall of different stock prices and pay the difference between the asset value at the beginning and the end of the contract.
Scalping strategy
Scalping is a trading strategy that is focused on profiting from small price changes created by small market movements, through a large number of traders. Scalpers predominantly open and close trade positions very quickly, and many companies consider scalping to be carried out within a three-minute time frame.
Day trading strategy
Day trading is where a trader buys and sells a financial asset within the same trading day, i.e., before the market closes.
Stocks vs stock CFD cheat sheet
| Stocks | Stock CFDs | |
|---|---|---|
| Trading strategy | Long-term | Short-term |
| Stock ownership | You own the asset | You profit from its performance. You don’t actually purchase the stock |
| Profit | You only profit from price rises | You can profit even from a falling market |
| Commission | You will be subject to broker fees | At Eurotrader, we charge zero commission on stocks. You’re welcome! |
| Extras | You’ll receive shareholder privileges such as dividends | You can leverage your capital and maximise your profits. Just be aware that you maximise your losses too |
Trading on a budget fractional shares
Sometimes, stock prices are a bit out of reach for an everyday investor. However, those looking to trade on a budget can take advantage of fractional shares instead, which function just like real shares.
A trader’s overall profit & loss will scale up in proportion to the value of the underlying share, so they’ll also be entitled to a fraction of the dividend that’s offered on it.
Fractional trading offers the potential to build a balanced and diversified portfolio, regardless of stock price and budget limitation. Fractional shares are also ideal for risk management: since you don’t have to purchase a full share, you can allocate your budget in multiple stocks and diversify your portfolio for less.
Did you know…?
You can trade fractional share CFDs with Eurotrader. Sign up here to get started!
Four steps for
stock trading
Make a trading plan
Decide on your budget, develop your trading strategy and then decide how you will diversify your portfolio. If you’re wanting to trade on a budget, you might also want to consider fractional shares!
Pick the Stocks
Speaking about picking the ‘right’ stocks, you may follow a well-known path. A way to start trading stocks is to select stocks of companies that you are familiar with, so you can consider all factors that can move their prices.
Another way to pick is to focus on a specific industry. In that way, it would be easier to explore trends, news and overall industry health.
Tell what's what before you trade up
Learn from each trade, what worked and what didn’t. Always listen to what your book, the experts and the market is telling you, never your heart.
Know when to stop
Keep risk management in mind. Understand the risks behind stocks trading and define your risk level. Stick with your plan but remember that it may evolve during the trading journey, revealing your strengths and weaknesses.
Ready to start trading?
Here’s a quick recap on how to trade stocks CFDs:
- Open your trade
- Buy (go long) if you think the price of the stock will increase. Sell (go short) if you think it will fall
- Select your trade size and how many CFDs you want to trade
- Place a stop-loss order and close your trade
Eurotrader Academy
As the old saying goes, an investment in knowledge pays the best interest – and at Eurotrader, we’re all about good investments.
Learn to trade and develop your skills with Eurotrader Academy. We’ve got plenty for you to watch and read so you can master the markets and make better-informed trading decisions.
Ready to go?
Open an account today and start your Eurotrader journey!
Risk warning: FX and CFD trading involves a high risk of loss.
