How to trade stocks
What are Stocks and How to Trade on Them?
A popular way of defining stocks which can be found on many websites, which state that stock holders own a share of the corporation or have a right on the profits and assets that the corporation earns, doesn’t necessarily represent the truth.
A corporation owns its own assets, because corporations are treated by law as a legal person. What shareholders own is not a share of the corporation’s assets, but the right to vote in shareholder meetings and to collect dividends in case the corporation decides to distribute them.
Another right that shareholders have, and in which you’re probably most interested in, is the right to sell their stocks on the market. Most investors participate in the stock market in the first place to sell their stocks later at a higher price, and collect the capital gain on the rise in the stock’s price. They don’t bother about voting or other rights that owning a stock carries – their primary objective in the market is to make a profit.
For example, if a stock trades at $10 and you expect that the stock’s price will rise to $15 in the future, you could decide to buy 100 stocks per $10 for an initial cash outlay of $1,000. Once the price rises to $15, your total balance will increase to $1,500, which means you’ll make a $500 profit in this situation.
You Can Also Trade CFDs on Stocks
However, there is another popular way to trade on stocks and increase your profit multiple times with a lower initial investment. It involves the usage of CFDs – or Contracts for Difference. CFDs simply track the price of the underlying stock, and you can trade them the same way as you would trade the stock itself. The key difference here is that CFDs are leveraged products, which means you can increase your exposure to a particular stock with a relatively low initial investment.
With PrimeCFDs, you can trade CFDs on the world’s most popular stocks, and increase your potential profit significantly with trading on leverage. Let’s take the same example as above and see how it would perform with CFDs. The stock trades currently at $10, and you have a total of $1,000 in your trading account. If you trade with a 10:1 leverage, you can buy up to 10 times the amount of stocks than you would be able to buy without leverage.
In our example, you could buy a total of $10,000 worth of stocks with your initial $1,000 investment, which equals to 1,000 stocks per $10. Once the stock’s price rises to $15, your total profit would now be $5,000, or 10 times the amount of profit you would make without trading CFDs.