A Basic Guide on How Share Trading Works

October 23, 2018Share&Stock Trading

There is a lot of potential for growth when it comes to the stock market. When you’re investing in stocks- buying and selling shares whenever appropriate- you will gain more profits in the process.

However, how does share trading work? Well, in this article, I will guide you to the basics of how the stock market and share trading in Malaysia works.

What is the Stock Market?

The guide about the stock market will not be complete without actually giving it its proper definition. Also known as the Stock Exchange, the stock market is a place where traders and investors can exchange their stocks and shares to gain profit.

How Does It Work?

Share trading (or stock trading) works differently today and in the past. Back in the day, people would have to call their stockbrokers (or agents that conduct the trades for them) if they want to buy or sell their stocks.

However, with the advent of modern technology, people can do it themselves by using an online stock trading platform.

Whether you’re doing it the old-fashioned way or the modern way, you will still need a broker because they will act as an intermediary between you and the company of your choosing.

Once you find the perfect company, you can buy its shares for use in trading. You can buy an unlimited number of shares so long as your money permits it.

Online and Stock Brokerage Firms

There are two ways you can get a broker. You can either get one online or you can visit one of the stock brokerage firms in your area.

An online stockbroker seems to be the best option for beginners because they usually offer lower-cost pricing schemes for their services. However, a good stock brokerage firm is handy as well since they’re offering a lot more. The choice is entirely up to you.

How Do I Earn Money?

There are multiple ways you can earn money from stock trading. Some ways are:

  1. Trading- Also known as Capital Growth, this is where you buy and sell your own shares to make your profit.
  2. Dividend Payments- When a company earns money, a part of that will be given to their shareholders in the form of Dividends. Given bi-annually, the amount you will receive will depend on the company’s earning as well as your total number of shares. Do note that the company can also choose to invest their earnings instead (which is known as “Growth shares”).
  3. Tax Benefits- When a company pays the tax on your dividend payments, a small portion of that will be added to you as well.

Benefits and Risks of Share Trading

We’ve now come to the point you’ve all been waiting for. There is a lot of benefits as well as risks involved in share trading. I will denote them using a “+” for benefits and a “-“ for the risks.

+Your assets are liquid in the sense that you can get your profits as early as two days after every transaction

+You will receive a discount when it comes to your taxes

+The promise of great benefits, so long as you do the appropriate trades

  • -Market prices are erratic, meaning, the price of a share can increase or decrease rapidly and at any time of the trading day
  • -Timing is also necessary as well. If you sell your shares while the market is bullish is good while buying shares is great if the market is bearish. Basically, it is said to be bullish if the market prices are foreseen to go up and the opposite is true for bearish markets as the prices are predicted to decrease

Related post