A stock is a share in the ownership of a company. Equity is synonymous with a share or stock – these are all one of the same – a share in the ownership of a company. Ownership of a stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater.
Trading stocks or shares is similar to trading most other asset classes. The time available to trade stocks each day is usually less than that of other assets classes. Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. The other type of exchange is virtual, composed of a network of computers where trades are made electronically. These exchanges are generally open between 9am – 5pm local time.
Many people associate stocks with investing. A person buys a share of a company and holds onto it in the hopes that the price or value of that share increases overtime. Then at a certain point in the future that person will sell this share for a higher price (allowing for inflation) and realise an overall net gain. Investing in stocks is then a speculation on long term growth of the share price. However trading stocks is different. A stock trader will buy or sell a stock. If they buy the stock they are speculating on an increase in the share value and if they sell the stock they are speculating on a decrease in the share value. Therefore stock traders can make profits from increases or decreases in the value of a share whereas investors can only profit from increases in value of the shares they hold – this is one of the disadvantages of investing.
Whether a stock trader buys or sells a share/stock/equity will be determined by them receiving information in line with their trading strategy that confirms this is the correct position to take. By waiting patiently for trading opportunities to present themselves in line with their trading strategy this instils discipline in the trader and ensures the individual is not deviating from a proven approach. This is precisely why mastering a trading strategy is paramount to your success.