When a company wants to expand and needs capital, they get listed on the stock market through an IPO (Initial Public Offering); in exchange for capital, investors get units of ownership called shares. So how do investort earn on shares trading?
The difference between stocks and shares
Stocks and shares are somehow the same thing, but with a tiny difference. When investors get units of ownership in exchange for capital, as we stated above, they do that through a stock certificate. The term ‘stocks’ is used when investors say they have partial ownership of some companies, any companies, in general; while the term ‘shares’ describes the ownership of a particular company.
How shares trading works
The shares trading process happens when the investor trades on the price movements on shares of a particular company that is trending on the equity market. Basically, they bid stocks/shares for a certain price and sellers ask for a price. It’s all about buying and selling shares. The factor that determinates the value of a share is the company and how well it trends and performs on the market. For example, when a corporation that sells shares goes well, the value of its shares rises; if it doesn’t perform well, its stocks/shares value falls.
The Equity Market
The equity market is the marketplace where investors meet to buy and sell stocks/shares. It’s also the place where companies issue stocks/shares that are traded either through exchanges (public stocks) or over-the-counter (private stocks).
Who trades shares?
There are three main categories of people who trade shares: investors, hedge funds and competitors.
Investors join the equity market with one purpose: to sell/buy shares and hopefully gain profit. Sometimes, private investors buy shares in order to support a favorite corporation, like Apple or Netflix.
Hedge funds want to remain unaffected by the market’s ups and down, in other words, to minimize the risk and maximize the profit. They usually buy shares from a variety of companies.
Competitors … well, as you already assumed, it’s a game of power and influence – they buy shares from their competitors.
EPS – Earnings per share
When buying a share, the situation of the company’s EPS (Earnings per share) is crucial. This term indicates how profitable the company is and the amount of profit that is allocated to each share of a common stock.
Companies trending on the Stock Market
All over the news and media there is a term widely-used as of 2017 – FANG stocks – which is the acronym for four high-performing technology stocks in the market: Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (now Alphabet INC). These corporations are still standing strong and trending on the stock market. Some other worth-mentioning companies are: Service Now (NOW), Paycom Software (PAYC), Carbonite (CARB) and Nvidia (NVDA).
The point is, shares are being sold and bought all the time, the market doesn’t sleep. For example, after the Cambridge Analytica scandal, Facebook suffered a significant drop but now it’s rebounding with an average EPS growth of 74%. In shares trading is crucial to stay informed and follow the market’s trends, as well as the news around the world that might make a difference for your trades.