Stock trading

How to trade shares online?

For correct online stock trading, it is necessary to use stock trading platforms or brokers that act as intermediaries between you and the stock markets and allow you to bet on stock performance thanks to CFD trading. When choosing a broker or trading platform, it is important to follow a clear guide with practical examples.

The best online trading brokers offer you a wide range of stocks to invest in, from pharmaceuticals to car manufacturers to other giants like Tesla, Amazon, Meta, Apple and Netflix that made waves in 2021.

What are Shares

Shares, simply put, are representative shares of ownership in a public limited company. In essence, ownership is divided among the shareholders. As an investment, shares have the main characteristic that they do not have a certain return, like bonds. Their return then comes in two types:

  1. The dividend, i.e. the profit that companies decide/are able to distribute each year; this indicator also has properties useful for technical analysis;
  2. The difference between the buying and selling value of the share.

These, the shares, are part of the capital of a company incorporated in the form of a joint-stock company (SPA). The owner of a share each year receives a share of the profits proportional to the share of capital held, in this case we are talking about the share called dividend. The same owner of a share can participate in ordinary and extraordinary general meetings, as well as appoint the administrative bodies of the company.

These factors we have discussed so far are proportional to the share of capital owned, the more shares in a company you own, the greater the accounts. Then we have the special shares, such as savings shares, which offer very high dividends while not allowing you to be a member of the company’s shareholders’ meetings. To fully understand the concept of shares, let us explain the concept of bonds, emphasising the differences between the two.

Bonds are debt securities issued by a company that offers a return, most often proportional to the risk and return. When you subscribe to a bond, you are in some way assured of obtaining not only your own money, but also predetermined interest.

There is the albeit rare possibility that the issuing company will go into default. There are no guarantees for everyone who subscribes or buys shares, as the company could opt not to pay dividends for years, resulting in a fall in the value of the security, without this representing an extraordinary circumstance.

When we consider share trading, we refer mainly to those shares of companies listed on the stock exchange; these are traded electronically, trading online, and can be purchased by anyone with an internet connection and an account on one of the best online trading platforms. To better understand the concept, let us discuss two other factors central to the discussion: capitalisation and free float.

  • The Capitalisation of a company, is nothing more than its value on the stock exchange, obtained by multiplying the number of total shares by the price of each share;
  • The share of the share capital, available for trading, is called the free float, this does not belong to the company’s permanent shareholders, and this often includes the share of those investment funds, in those cases where this is not a controlling share.

It is important to understand these two concepts well as it is never advisable to trade in shares of companies with low capitalisation and low free float. It is difficult to predict these types of shares, which are often subject to manipulation and misconduct of various kinds.

How to trade shares

Shares are financial instruments listed on major exchanges and their prices are closely linked to trading levels between traders. They are simple instruments that are also suitable for newcomers to online trading.

You can invest in shares from the comfort of your home by opening a free account with the broker eToro , for example . The eToro broker is not only known for social trading, but also offers stock trading in Amazon shares, Tesla shares and Microsoft shares, to name just a few of the shares popular with traders.

Where can you buy shares?

You can buy shares listed on markets that are regulated depending on the country: German shares on the Frankfurt Stock Exchange; American shares on exchanges such as Nasdaq or NYSE; European shares on the stock exchanges in, London, Madrid and other places.

To do this, you need an online trading platform through which you have direct access to real-time prices. By using special services useful for trading with a Forex broker or CFD broker, you can invest in both stocks and stock indices.

Buying shares at the bank

If you prefer, you can buy shares directly from your bank. To do this, you need to go to the branch where you have your current account and open a securities account.

The securities account is a separate account from your current account that you will use for future investments. Once this is done, you will consult with the bank employee in charge of this area. Buying shares at a bank involves higher costs compared to online trading, as bank commissions are much higher.

In addition, buying shares involves greater risks, since the markets and the shares of companies can rise as well as fall, and you can lose a lot of money as a result. But that’s not all: to buy shares, you need a fairly high starting capital, whereas with online trading you can bet on a particular security with small amounts.

Compared to online trading, buying shares at a bank means that we entrust our investment to a third party who deals exclusively with it and does not keep us informed on an ongoing basis. Another option offered by the bank is to buy shares through Home Banking.

Buying shares via Home Banking

You have seen how to buy shares directly from the bank, but you have also realised that this involves higher costs and that you do not have real-time access to your investments.

Another option for investments is home banking.

Homebanking is an online platform that your bank provides for you to do routine transactions, such as paying bills and making transfers, but not limited to. Through home banking, it is also possible to make investments in a similar way to online trading.

The difference between online trading with a certified broker platform and home banking with your own bank is essentially the cost of commissions.

Even with home banking, the commissions are not very low, and in addition, the banks’ platforms are never on the same level as online trading in terms of the instruments to be used and the speed of order execution.

Investing in shares with online trading

Investing in shares does not mean buying shares. Buying a share has the ultimate goal of making the most money. There are two ways to make money: either by increasing the share price on the financial markets or through dividends.

Dividends are not guaranteed and the share price always includes the value of the dividend; the day after the dividend is paid, the value of the share on the stock market always falls by an amount equal to the dividend itself.

When the share price rises, the profits from the virtual shares only become real if they are actually sold.

Buying shares can involve the risk of large losses, because if the share price falls, the trader has two options available to him or her

  1. Keep the loss and hope that the share price somehow recovers;
  2. or simply accept defeat.

To invest in shares, one should not buy shares but subscribe to derivatives that have the shares themselves as their underlying asset.

Derivatives are securities whose value is linked to the value of an asset, the underlying asset (listed shares); a profit is possible both if the value of the underlying asset rises and if it falls. To make money, you have to predict the trend. Trading CFDs and Forex are two good instruments to make money with shares.

On the other hand, platforms that allow you to buy stocks directly should be discouraged. Moreover, it is good to know that these platforms always charge commissions for execution; if you have a lot of capital and an investment horizon of several years, buying shares directly may be worthwhile.

In the following two sections we would like to give you two practical examples of investing in share trading.

Share index

A stock index is a portfolio of securities: a defined basket of stocks that are given a certain weight for the calculation of the price by different weighting systems.

The performance of this system is the product of the stocks it contains: the value increases when the share price rises, it falls when the shares lose value.

Each stock index corresponds to a considerable trading volume and is carefully executed every day by experts in the field. There are a large number of platforms that allow trading via CFDs (Contracts for Difference).

Aktienindizes und Devisen

Die Grundlagen der technischen Analyse, die dem Devisenmarkt eigen sind, werden auch in Aktienindizes erörtert, einschließlich der Forex-Handelsmuster. Die Nachrichten, die wir am Devisenmarkt zu verfolgen gewohnt sind und die sich aus dem Wirtschaftskalender ableiten, unterscheiden sich voneinander, je nachdem, in welchem Verhältnis die Aktien zur Art der Nachrichten stehen.

Die Indizes unterliegen den Einflüssen von Aktualisierungen anderer Art, die sich auf Episoden oder Entscheidungen einzelner börsennotierter Unternehmen oder betroffener Wirtschaftszweige beziehen. Aktienindizes zeichnen sich durch eine hohe Volatilität aus, was einerseits eine hervorragende Gelegenheit für den Intraday-Handel darstellt, andererseits aber auch ein Risikofaktor ist.

Wichtigste Aktienindizes
Zu den wichtigsten Aktienindizes gehören:

  • Französischer CAC 40;
  • Deutscher DAX 40;
  • Italienischer FTSE MIB;
  • Britischer FTSE 100;
  • Spanischer IBEX 35;
  • Japanischer Nikkei 225;
  • Dow Jones, S&P 500 und Nasdaq.

Stock index distinctions

In addition to the geographical distinction, which is certainly the most obvious, stock indices can also be classified according to the industrial sector of the securities they contain and according to the weighting system that determines the weighting of the individual securities within the portfolio.

For each country or world economic area, there is an index “representative” of the economy in question. The purpose of indices is precisely to concentrate the performance of a particular economy in a number and a trend.

Without going into too much detail, it is basically a matter of putting together a kind of portfolio of the most representative shares of the market and weighting the quantity of each share according to its stock market value.

From a technical point of view, it must be said that not all indices are calculated in this way, but that, as in the case of the Dow Jones, the weight is sometimes determined only by the price of the security: Securities with a higher price have more weight!

For online trading, it is important to know that the indices of the world’s stock exchanges are highly correlated, i.e. the performance of one index often depends on that of another, and so on: In the morning you look at how Tokyo or Shanghai have closed, then you see how the European stock exchanges open, and finally you look at America.

The classic stock market

The usual way to invest in shares is to rely on a broker and buy shares on their platform. Russell Investment Group is the company that “manages” the exchange of financial instruments on the London Stock Exchange, including shares. As companies wishing to be listed on the stock exchange have to meet a whole range of requirements and offer guarantees, buying shares on the exchange offers important safeguards.

For more than 10 years now, there has been no minimum volume for shares, but it is possible to buy as little as 1 share in a company, so the minimum investment amount for shares no longer exists.

But as we said, to operate on these markets, we have to go to a bank that charges us a commission for each transaction: so we could end up in the paradoxical position of paying more commission than the share itself!

To trade on this market, it is necessary to open a securities account with a broker.

Taxation

Another important aspect of investing in shares is taxation: an investment of €25,000 in shares, which yields a hypothetical annual return of 6% amounting to €1,500, results in a tax bill of €375 at the current tax rate in Germany of 25%.

Shares from a tax point of view

From a tax point of view, shares are treated in the same way as non-government bonds, but have the advantage (for the few who actually do) of allowing participation in shareholder meetings. There are various studies that can be done for trading equities, such as fundamental analysis.

There is also the possibility of investing in shares with products that have shares as their underlying:

  • CFDS;
  • ETFS.

Shares are often part of stock indices that try to summarise a particular market by analysing the performance of a number of these instruments.

The publication of results

Publishing earnings is very important, especially when investing in US equities. Every four months, US equities publish earnings for the previous quarter. We would like to point out that, paradoxically, it is not so much the earnings themselves that are important, but the fact that they deviate from market expectations.

In fact, almost all commercial banks are consulted by the world’s major information providers (Reuters, Bloomberg, etc.) before these results are published, in order to get an advance on expected earnings. Given a certain number of anticipations, a consensus, i.e. an average expected value, is established.

When publishing the results, we can assume 3 situations:

  1. The published result is in line with the consensus and the share price will most likely not move much;
  2. The published result is below consensus and the share price is likely to fall;
  3. The published result is above consensus and the share price is likely to rise;

So, from a practical point of view, it also depends on how big the divergence is and, most importantly, whether expectations of future earnings are better or worse. There is also an old saying in the markets that you should buy on rumours and sell on news, which means that you should open a position in a stock when there is unconfirmed news about it and then sell it when that news is confirmed.

This means that traders often open positions with certain expectations which, when fulfilled, lead to profit taking and hence a fall in the stock. If the expectations for the numbers are perfectly fulfilled, a security may lose value because the person who opened a bullish position sees the expected value confirmed (the so-called take profit) and therefore closes the position.

ETFs

Seit einigen Jahren gibt es jedoch eine Alternative zur Direktanlage in Aktien:

Hier finden Sie eine Zusammenfassung der Produktart.

Der ETF (Exchange Traded Fund) fasst die Eigenschaften eines Fonds und einer Aktie zusammen und ermöglicht es den Anlegern, die Stärken beider Instrumente zu nutzen

  1. Diversifizierung und Risikominderung bei Fonds;
  2. Flexibilität und Informationstransparenz des Echtzeithandels von Aktien.

Die ETF ermöglicht Ihnen das:

  • Mit einer einzigen Kauftransaktion eine Echtzeit-Position auf dem Zielmarkt einnehmen: Durch den Kauf eines ETF ist es möglich, in Echtzeit in einen ganzen Marktindex (z. B. FTSE MIB, DAX, Nasdaq100, S&P500) zu einem Preis zu investieren, der den Wert des Fonds zu diesem Zeitpunkt perfekt widerspiegelt;
  • Erzielung der gleichen Wertentwicklung wie der Referenzindex: Der ETF ermöglicht eine Rendite, die derjenigen der Referenzbenchmark entspricht, indem er beispielsweise durch ein “völlig passives Management” die Zusammensetzung und Gewichtung des Index, auf den er sich bezieht, exakt nachbildet. Es ist jedoch zu beachten, dass die Rendite des ETF aufgrund der Abwertung/Aufwertung dieser Währung gegenüber dem Euro von der Rendite der Benchmark abweichen kann, wenn sich die Referenzwährung des Index von der Handelswährung (die immer der Euro ist) unterscheidet.
  • Senkung der Portfoliokosten: ETFs haben eine reduzierte jährliche Gesamtgebühr (TER), die automatisch im Verhältnis zur Haltedauer erhoben wird, während dem Anleger keine Einstiegs-, Ausstiegs- und Performancegebühren berechnet werden. Der Sparer muss nur die Gebühren berücksichtigen, die seine Bank oder sein Broker für den Kauf und Verkauf auf dem Markt berechnet.
  • Verringerung des Emittentenrisikos: Bei den auf ETFplus gelisteten ETFs handelt es sich je nach Instrument entweder um Investmentfonds oder Sicavs (OICR). Bekanntlich sind die Vermögenswerte der OICR von denen der Gesellschaften, die für ihre Gründung, ihr Management, ihre Verwaltung und ihre Vermarktung zuständig sind, getrennt. ETFs sind daher auch im Falle eines Konkurses der genannten Unternehmen nicht dem Risiko einer Insolvenz ausgesetzt.

The characteristics of the ETF make it suitable for various uses: medium/long-term investments, intraday trading and short selling to take a bearish position against the benchmark index.

In any case, in order to ensure maximum liquidity, it is necessary for each ETF to have a specialised trader who is obliged to place bid and ask orders on a continuous basis for a maximum quantity and spread set by the exchange.