What Is Share Dealing?
Share dealing is for most intent and purposes the default in financial trading, and certainly most people tend to think of shares when they think about playing the financial markets for profit. For those looking to get in to financial trading for the first time, share dealing might seem like an obvious route, but it's not without its difficulties and those that don't understand the mechanism of share trading and the purposes of it are unlikely to be able to progress to the level of sophistication required to trade successful. But what is share dealing in concept, and how exactly does it work in practice?
Companies are capable of delivering large projects and expansion to improve the prospects of returns from their shareholders, but this inevitably requires a source of funding to finance development. Shares are the main mechanism through which companies raise private capital, and having the ability to call on funding from the markets when necessary is an important part of listing on and trading securities in stock markets. Share dealing is the process of speculating on changes in the value of underlying shares, and it can be possible for traders to deliver substantial returns through shrewd investment in the capital markets.
Share dealing relies on an understanding of a few fundamental trading concepts - from what a share actually is to how and why it is traded. As part of the ongoing need for research and knowledge development, it's important to look at share dealing at its most basic, to get a better feel for how the markets might behave and why they might behave in that way.
What Are Shares?
Shares are units of ownership in companies that allow proportionate ownership to be bought and sold fluidly. Traded on stock markets, shares allow the bearer to have a proportionate say in the company's management through voting rights at general meetings, in addition to a proportionate share of company profits. Shares enable companies to be bought and sold, an essential economic function, in addition to affording speculators a basis on which they can trade for profit. But shares also help companies raise private capital to fuel their growth and corporate development, and in this sense equity financing can become something of a self-fulfilling prophecy, with capital used to fuel growth with in turn drives up the value of company shares.
How Are Shares Traded For Money?
Shares are bought and sold in publicly traded markets, such that amateurs are rubbing shoulders with professionals and even large investment funds and banks when trading in these markets. On the buy side, share prices rise to reflect the growing demand that comes from each incremental sale. On the sale side, this effect is reversed, which depresses the market value according to the proportion of the total issued shares that are sold. For traders looking to make money, the most significant returns are to be found in speculating on these price fluctuations, which have the capacity to deliver capital growth proportionate to the size of the investment.
In addition to capital returns, shares can also be traded for dividend returns, which represent shares of the profits of the companies held in ownership by a trader. These ongoing yields are declared at different points throughout the year based on company performance, and so traders can look to find higher paying shares as part of their investment research in order to find the best and most profitable positions to trade.
Are There Risks?
Share dealing is not without its risks, and traders should be prepared to lose the money that they invest in companies. While appropriate research and analysis can help prevent total disaster trades, they can happen and traders need to be aware that they are liable to the full extent of their investment for losses and well as gains in positions. Fortunately, share dealing enjoys less severe financial consequences for getting it wrong than other styles of investment (where traders can be liable to infinity beyond their original capital exposure), however it's still important that traders take measures to deal with risk and counteract the threats to their trading capital by trading more shrewdly.