What is the Equity Market?
The Equity Market is a place where shares are issued and traded also known as the Stock Market. The Equity market is a place for buyers and sellers of equities. It’s where investors bid for shares by offering a certain price, and the sellers ask for a specific price. When the bid and ask price match, a transaction will take place.
Why trade Equities?
When you buy equities or stocks, you are taking ownership of a small part of a specific company. If that company increases in value, the value of your equity also increases. Equity is bought and sold in the form of shares.
Investors buy shares to make a profit from a company’s future growth and dividend payouts. When someone buys a share in a company the hope is for the company share price to increase in value and then sell the shares for a profit.
When you buy a share of a company you are buying a small piece of the company and you will have voting rights and have a claim to profit sharing and dividends paid out.
Investors buy shares mainly for long-term purposes and gains.
Company shares don’t always go up in value and trading today is a very fast business. The investor buying shares can only profit in a rising market. When shares go into a bear market it is impossible for the investor to make a profit.
Therefore, derivative trading has become very popular. It was initially used by Hedge funds and large institutional traders only. Smaller traders soon realised the power of derivatives to make active trading easier and simpler.
“Contracts for difference” also known as CFD’s are but one derivative which has become very popular since 2010. CFD’s enables the trader to make money in a rising and falling market.
When the market is rising the trader buying the CFD is taking a long position and will be profitable when the market price keeps going up in value. When the market goes down the trader can be a short seller and will make money when the market keeps going down.
CFD’s are mainly trader for short-term trading, to generate cash over a short period of time. It’s also used when hedging a long-term portfolio.
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