Understanding Basics of Share Trading

Understanding Basics of Share Trading

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When a company wants to raise capital for its business from public, it issue shares which entitles the investors to receive a share of its profits. This share of its profit is known as Dividend. When a company issues the shares for the first time it is known as Initial Public Offering, commonly known as IPO. After the IPO period ends the shares get listed in various stock exchanges where one can buy and sell these shares.

How the price of Shares going up ?

Price of the shares goes up when the demand for those shares increases. For example, if "A" wants to buy "X Company " shares @ $ 20. "B", who has these shares is willing to sell it only @ $ 25. Another person, say "C" comes forward to buy the shares @ $25 from Person "B". This transaction shows that the "X Company" share has generated a high demand in the market and the current price will be displayed as $ 25. Demand becomes high for a particular share when some good news coming about the company, or its quarterly or half yearly results are going to be announced.

How the price of Shares going down ?

When the demand for a share goes down, the price also will go down. In the above example, if the third person, who appeared between A & B is not coming forward to purchase the share, then no transaction is taking place. After sometime, if "A" modify his order for buying for $ 19 and "B" sells for $ 19, then the current price of that particular share will be recorded as $ 19. Bad news about the company, Economic upheavals, Political turmoil etc. can cause the demand for share to go down.

How to minimize the Loss while trading in Shares ?

Everybody knows the risk involved in the investment in shares. The risk is high especially in an already appreciated market. Many of the shares may be in overvalued state. If you are taking a decision to buy a particular company share, study about the company carefully, its future plans and potential of its products in the company. You also have to make a comparative study with the competitor company's plans and there financial performance too. This way you can decide at what price the share is profitable to buy. Put a stop-loss for these shares. Stop-loss means you are fixing the loss beforehand. If the share is failing down beyond a particular level you decide to sell those shares, thus minimizing the risk.

Following are the simple steps for Trading in Shares.

Identify a good Broker who is having years of experience in his field. He charges a Brokerage on every buy and sell you make through him. Check his Brokerage and compare it with other Broker's Brokerage. Open a Trading Account with him. Open a De-mat Account to keep your shares. You can open De-mat account in a good reputed financial institution. Buy and Sell Shares with this Trading Account.