What Is Share Trading and How Does It Work?

Share trading is one of the most popular ways to participate in the financial markets. In this guide, you’ll learn what share trading is, how it works, and the strategies traders use to profit from market movements. Whether you’re new to trading or looking to refine your approach, this article will walk you through the tools, platforms, and risk management techniques needed to trade shares effectively.

What Are Shares?

Shares represent a unit of ownership in a company. When you buy a share, you’re purchasing a small portion of that business, known as equity. As a shareholder, you’re entitled to part of the company’s profits (dividends) and may also gain voting rights, depending on the share type.

Companies issue shares to raise funds for growth, expansion, or new projects. For traders and investors, shares offer a way to participate in a company’s success and benefit from its rising value.

Example: When Apple Inc. went public, investors could buy shares and become part-owners of the company. As Apple’s profits grew, so did the value of those shares, rewarding investors for their confidence.

What Is Share Trading?

Share trading refers to the act of buying and selling shares on the stock market. It involves the exchange of ownership of shares in publicly listed companies. Share trading can be used to profit from price movements or to build a diversified portfolio for long-term wealth accumulation.

Share trading is the process of buying and selling shares of publicly listed companies on the stock market. Traders and investors use it to profit from short-term price movements or to build long-term wealth through capital growth and dividends.

The stock market provides different approaches, ranging from short-term day trading to long-term investing, allowing participants to trade based on their strategy, risk tolerance, and market outlook.

Example: A trader might buy Tesla shares when prices dip, expecting a new product launch to boost demand. If the stock price rises, they can sell at a higher value to secure a profit.

How Does Share Trading Work?

Share trading takes place on stock exchanges such as the NYSE or LSE, where buyers and sellers exchange shares through brokers. When you place an order, your broker matches it with another trader’s order in the market. Share prices constantly change due to supply and demand, which are influenced by company performance, market sentiment, and economic conditions.

Once the order is matched, the trade is executed, and ownership of the shares is transferred. The clearing process ensures both parties meet their obligations, usually within a few days. Share trading can result in either profit or loss, depending on how the market moves after your trade.

Example: A trader buys shares of a company following strong earnings results. As the share price rises, they sell the position at a higher price to secure a profit.

Discover the top 10 largest stock exchanges in the world by market capitalization. 

Types of Shares to Trade

Traders can choose from several types of shares, each offering unique characteristics and risk levels:

1. Blue-Chip Stock

Shares of large companies such as Apple or Microsoft. They offer steady performance and are considered lower risk, making them ideal for long-term investors seeking consistent growth.

2. Penny Stocks

Penny stocks are low-priced shares, often under $5, from smaller or emerging companies. They can offer high returns but also carry higher risk due to volatility and limited liquidity. These stocks appeal to traders looking for short-term speculative opportunities.

Discover the 10 best penny stocks to watch. 

3. Growth Stocks

Shares of companies are expected to expand faster than the market average. Their value is driven by innovation and future potential rather than current profits. Tesla is a well-known example.

4. Dividend Stocks

Shares of companies that regularly pay out part of their earnings as dividends. They are popular with investors who want steady income alongside potential capital gains.

Each type of share has different risk levels and returns, making them suitable for various investment strategies.

What Moves Share Prices?

Share prices change constantly based on a range of factors that influence investor confidence and market demand. Here are some of the most important ones:

1. Company Performance

Strong earnings, new product launches, or revenue growth often lift a company’s share price. Poor financial results or management issues can have the opposite effect.

2. Market Sentiment

Investor mood and market confidence play a major role. Positive news or trends can encourage buying, while uncertainty or negative headlines may cause selling pressure.

3. Economic Indicators

Key factors such as interest rates, inflation, and GDP growth influence share prices. For example, rising interest rates can reduce investor appetite for stocks.

4. Supply and Demand

Prices rise when more people want to buy than sell, and fall when supply exceeds demand. Stocks like Tesla often see strong price movements when investor demand spikes.

Example: When Apple reports strong quarterly earnings, investors often rush to buy shares, pushing the price higher as demand increases.

Discover the stock market trading hours in the world.

How to Trade Shares

Follow these steps to start trading shares effectively:

Step 1: Understand How Share Trading Works

Learn how shares are bought and sold, how prices move, and the different types of stocks available. A solid understanding of the market is essential before you begin.

Step 2: Select a Way to Trade Shares

You can trade through stock exchanges or use Contracts for Difference (CFDs). Each method suits different goals and risk levels, so choose one that matches your strategy.

Step 3: Select a Regulated Broker

Work with a trusted broker such as VT Markets, which offers a secure trading environment, user-friendly platforms, and competitive spreads.

Step 4: Create & Fund Your Account

Create your trading account and deposit funds using a convenient payment method. Always start with an amount that aligns with your risk tolerance.

Step 5: Choose a Stock You Wish to Trade

Pick stocks that match your trading strategy. You can trade blue-chip stocks for stability or use short-term strategies like swing trading or momentum trading to capture price movements.

Step 6: Decide to Go Long or Short

Decide whether you want to buy shares (go long) or sell shares (go short). Going short means selling if you anticipate a decline. This flexibility allows traders to profit in both directions.

Step 7: Place Your Trade

Execute your trade by placing a market order for immediate execution or a limit order to buy or sell at your chosen price.

Step 8: Implement Risk Management Tools

Use tools like stop-loss and take-profit orders to manage potential losses and secure gains. Risk management is key to consistent performance.

Step 9: Stay Informed & Updated

Keep track of news, earnings reports, and market data. Staying informed helps refine your strategy and improve trading decisions.

Discover the best time to buy and sell stocks.

Share Trading vs. Investing: What Are the Differences?

Although both share trading and investing involve purchasing shares, there are key differences:

Both share trading and investing involve buying shares, but the goals and time horizons are different.

• Share Trading: Focuses on short-term price movements. Traders use strategies such as day trading, swing trading, and momentum trading to profit from quick market changes.
• Investing: Focuses on long-term growth. Investors hold shares for years, aiming for capital appreciation or steady income from dividends.

Learn more about the differences between trading and investing.

Why Do Traders Trade Shares?

Traders trade shares for several reasons, from short-term profit to portfolio growth.

1. Profit from Price Movements

The main goal is to profit from short-term price changes. Traders buy low and sell high, using strategies like day trading or swing trading to take advantage of volatility.

2. Portfolio Diversification

Trading multiple stocks across different sectors helps spread risk. If one stock falls, gains from others can offset losses, creating a more balanced portfolio.

3. Leverage

Using leverage allows traders to control larger positions with less capital. It can boost profits when the market moves in their favor, but it also increases potential losses.

4. Dividends

Some traders choose dividend stocks to earn regular income while holding shares. This steady payout can complement potential price gains and provide extra returns over time.

Risks of Share Trading

Share trading can be rewarding, but it also involves several risks that traders should understand:

1. Market Volatility

Stock prices can move unpredictably due to earnings reports, economic data, or geopolitical events. These sudden changes create opportunities but also carry a high risk of loss.

2. Loss of Capital

If a company underperforms or markets decline, share prices may fall sharply, leading to potential losses on your invested capital.

3. Emotional Trading

Fear and greed often drive poor trading decisions. Acting on emotion instead of analysis can lead to mistimed entries and exits, increasing the chance of loss.

4. Leverage Risk

Using leverage allows traders to open larger positions with less capital, but it can also magnify losses. A single move against your trade may result in losses greater than your initial deposit.

In Summary 

Share trading gives traders the opportunity to profit from stock price movements using strategies that match their goals and risk appetite. Success depends on research, timing, and effective risk management. With the right tools and reliable market access, VT Markets helps traders navigate the stock market with confidence.

Start Trading Shares Today with VT Markets

Begin your share trading journey with VT Markets, a trusted broker offering powerful platforms like MetaTrader 4 (MT4) and MetaTrader 5 (MT5). Enjoy fast execution, competitive pricing, and access to daily market insights that help you trade with confidence.

New to trading? Open a VT Markets demo account to practice in real market conditions, or visit the VT Markets Help Center for platform guides and trading support.

Sign up today and start trading shares with VT Markets confidently and efficiently.

Frequently Asked Questions (FAQs)

1. What are shares?

Shares represent part ownership in a company. Buying shares gives you a claim on its profits and assets, often paid out as dividends.

2. What is share trading?

Share trading is the process of buying and selling shares of publicly listed companies to profit from price movements.

3. How does share trading work?

Share trading takes place on stock exchanges, where buyers and sellers match orders through brokers. Prices move based on company performance and market demand.

4. What are the types of shares?

Common types include blue-chip stocks (large, stable companies), penny stocks (low-priced, high-risk), growth stocks, and dividend stocks that provide regular income.

5. How to trade shares?

Open a brokerage account, deposit funds, and use platforms like MetaTrader 4 (MT4) or MetaTrader 5 (MT5) to buy or sell stocks. Practice with a VT Markets demo account before trading live.

6. Why trade shares?

Trading shares offers profit potential through price changes and dividends. It also provides flexibility, letting traders go long or short based on market trends.

7. What are the risks of share trading?

Risks include market volatility, loss of capital, and emotional or leveraged trading. Using strong risk management can help reduce potential losses.

8. Is share trading profitable?

It can be profitable with the right strategy, timing, and discipline. Visit the VT Markets Help Center for more guides and trading resources.