How to Trade Shares

A further benefit of trading stocks or shares compared to other markets is diversification. Stocks offered by easyMarkets span multiple industries: technology, retail, entertainment, e-commerce, automotive and more. Certain events may affect specific industries leaving other unscathed. For example, although the China-U.S. trade war sent shockwaves through multiple industries like the agricultural and automotive, certain industries like aluminum manufacturing actually saw growth as a result.

Diversifying a portfolio can average out volatility and help manage risk. This is a strategy used frequently by institutional investors called “hedging”, which is basically the practice of “protecting” one trade with another.

Most investors trade a diverse set of instruments depending on their strategy, risk appetite, and financial goals. Let’s not be coy though, most investors seek to create the highest returns for the lowest level of risk in the shortest amount of time.

Although the motivation or goal may be simple, the process is not – there is an entire field of economics dedicated to this exact topic called Modern Portfolio Theory.

There is no perfect solution or silver bullet of success when it comes to investing, a balance of risk to reward can prove effective.

When diversifying you need enough shares to average volatility, but not so many that you can’t monitor individual stock performance. If you hold too many it requires a lot of work to ensure you’re up to date. You also need to consider how long you will hold the shares, as frequently changing your portfolio can quickly rack up charges.

Another disadvantage of shorter-term shares trading is you lose the benefit of volatility being normalized (or averaged out) over a longer period.

Stock markets can also be day traded. Much like other instruments, shares or stocks are volatile during the market openings and overlaps.

Volatility may present more opportunities, but it also carries more risk. Rapid movements not only go up but also go down. This can be a precarious situation for inexperienced traders.

Of course, shares (or stocks) aren’t immune to the classic trading strategies – like buy low and sell high or finding a company that outperforms the market consistently. And although it’s possible to only trade shares, most traders and investors use shares as part of a more diversified portfolio.

When trading, a great way to manage risk is through knowledge – share or stock traders have access to immense amounts of data – both fundamental and technical. Shares are some of the most popular ways to invest. Market news websites such as Bloomberg, The Wall Street Journal and more cover stocks exhaustively, and some even give recommendations for public companies to watch.