Share dealing is the starting point for most investors and would-be traders, regarded as the natural default option because it is so synonymous with what investing is all about. Aside from representing trading in fundamental, buy-low sell-high, pure form, share dealing is both intellectually and capitally more accessible than other types of investment for new and inexperienced traders. But beyond that, traders can benefit from liquidity in share markets, and electronic exchange in share trading to compound the advantages of trading in shares.
With relatively low barriers to entry on both technical and functional levels, share dealing is arguably one of the easier types of trading to learn, understand and trade when you’re new to the markets.
The process of trading shares is relatively simple in comparison to other financial instruments, with limited options and variables in contrast to the alternatives. When a trader enters a share market, he is usually looking to see that the market will rise and, as a result of good company performance, his shares will increase in value. This is a much simpler approach than, say, a spread bettor considering a market, who would be required to have regard to leverage, the potential impact of market volatility and setting stops to prevent unlimited losses. Shares are bought for a starting price which it is hoped will rise, so traders can profit on the difference – a direct growth in the value of their capital.
While to suggest share trading yielded easy profits would be to misrepresent what is still essentially a form of market speculation. But with a more straightforward technical outlook, share dealing is perhaps still a natural choice for those looking to get off the mark by trading their capital.
On a functional level, share dealing is also now more accessible than ever before, thanks to the proliferation of web and now mobile share dealing platforms making remote account access feasible. In days gone by, share dealing could only be conducted through bricks and mortar brokers, usually by phone, and in response to decisions of a distant trader. Today, even amateur traders can have full command of charts, live price data and news stories as they execute trades directly through their brokerage platform, making for a much more controlled and accessible trading experience.
This means in essence anyone with capital to spare can start trading the markets. However, this increased accessibility engenders a greater responsibility on traders getting involved to know their markets, know how to trade safely and know how to turn a profit from trading shares, to protect and grow their capital in a sustainable way.
Another key advantage of share dealing as compared to trading in other instruments and market types is liquidity. In order for markets to function, there must be a certain degree of liquidity present to ensure free flowing trade in the asset or instrument concerned. This enables traders to get access to the assets they desire, while allowing sellers to market their wares for a market price as and when they choose to do so. The more liquid a market is, the more quickly these orders can be filled, and the less exposed market prices are to volatile jumps between order and execution.
Liquidity is the measure of how quickly assets (such as shares, or contracts for difference) can be bought and sold in a market, and how closely the market price sticks to the order price for said asset. More liquid markets achieve quicker and narrower results, while less liquidity means delayed order filling and the increasing potential for slippage. Broadly speaking, shares tend to benefit from strong liquidity, particularly in the large financial markets like the FTSE100 or the European markets, and this has the effect of ensuring traders can benefit from leveraging high liquidity to their advantage.
The main benefit of liquidity, aside from the timeliness of more liquid markets, is the ability to sell your shares and ‘liquidate’ your investment without delay. Because most share markets are driven by millions of share trades every day, a supply of both capital and equity is assured, meaning traders can execute orders closer to real time (with more liquid markets yielding more effective results). This means in practice, traders can withdraw the value of their investments as cash without delay – a significant advantage over other types of investment product.
Liquidity in shares makes trading them more attractive, and while liquidity is not guaranteed with all shares, there are sufficient options in the mainstream for traders to comfortably avoid trading in less liquid securities. The benefits this brings to capital and account control are significant, and traders should seek out conditions of higher liquidity as a preference at all times.
Shares are traded now through electronic exchange on the most part, providing greater efficiency and price effectiveness in markets. In days gone by, and indeed still in some notable markets today, floor trading was the means by which counter-parties to trades were matched, creating a manual layer of orders and providing less efficient order matching and filling. With electronic exchanges, which are now more common, this process is automated to a much larger extent, meaning orders are executed faster and at better prices to traders.
Depending on the specific share markets you trade, the benefits of electronic exchange are immediately noticeable as far as trading experience is concerned, allowing much more dynamic trading and much less price slippage. With the time taken to execute your orders reduced, every second saved is potential profit secured on your transaction, so it’s always a case of the quicker the better. Furthermore, by reducing the layers of expense tied in to providing the exchange, traders can ultimately benefit from lower filtered-down costs of accessing the markets.