Shares trading means buying and selling the stock of listed companies to make a return or manage exposure. You can do it on a stock exchange through a broker, or over the counter with a dealer, depending on the market.
Some traders own the shares outright. Others use leveraged products that track share prices without taking legal ownership. Time horizons vary from minutes to years, but the core idea is the same: enter at one price, exit at another, and keep the difference after costs. If you are unsure about what a share is, start there.
What counts as shares trading?
At its simplest, it is placing a buy when you think a company is undervalued and a sell when you think it has run its course. Beyond that, the label covers several approaches:
- Cash equity dealing, where you buy and hold the actual shares in an account.
- Short-term trading, including day trading and swing trading, focused on price patterns, news and momentum.
- Income strategies that target dividend streams, often around ex-dividend dates.
- Pairs or sector trades that go long one stock and short another to back a relative view.
- Exposure via contracts for difference, spread bets or options, which mirror price moves without transferring ownership.
Traders watch the live share price, company news, earnings, broker notes and broader market tone. Time of day matters too. Liquidity can be deepest during the main exchange session, with lighter activity in pre-market or after-hours where available, and wider spreads.
How a share trade is placed and executed
You place an order with a broker or platform. The exact screens and rules vary by provider, but the workflow usually looks like this:
- Choose the instrument: the ordinary shares, a different line for a secondary listing, or a derivative that references the stock.
- Pick order type: market to execute at the best available price, limit to set a maximum buy or minimum sell price, or stop orders to trigger once a level is reached. Some venues support time-in-force choices, partial fills and auctions.
- Set size: number of shares or cash amount, plus any conditions such as minimum quantity.
- Route and execution: your broker sends the order to an exchange or a market maker. You may be filled in one go or in slices as liquidity appears. Slippage can occur if the market moves before your order is completed.
- Settlement: ownership and cash usually swap a short period after trade date, often within a couple of business days, although this varies by market.
All prices are shown as two-way quotes: a bid where you can sell and an offer where you can buy. The difference is the spread, which, along with commission, is a real cost.
Costs, taxes and other frictions to budget for
Small price edges are quickly eaten by costs. Make a checklist before you trade:
- Brokerage commission or dealing fee, charged per trade or as a percentage.
- The spread between bid and offer, which you effectively pay on entry and often recover only if the price moves in your favour.
- Financing costs on margin or leveraged products, credited or debited overnight.
- Borrow fees if you short a hard-to-borrow stock.
- Exchange, clearing or regulatory fees that may be passed through.
- Currency conversion if you trade shares in a foreign market relative to your account currency.
- Transaction taxes and stamp duties where applicable. Rules differ by country and can change, so check the current schedule for your market.
Because these charges vary by provider and jurisdiction, read the fee schedule for your account type and instrument before you place a trade.
Owning shares vs using leverage
There are two broad routes to shares exposure:
- Owning the shares: you hold them in custody, gain voting rights where relevant and are entitled to declared dividends. You need to fund the full purchase price, although some brokers allow limited margin against the portfolio for larger, liquid names.
- Leveraged products: contracts for difference, spread bets and options let you control exposure with a smaller outlay. They magnify gains and losses. You do not own the underlying shares, but your P&L follows the quoted price and is adjusted for corporate actions according to the product’s rules.
Leverage changes the risk profile. A 2 percent move in the share price is still 2 percent for a cash holder. With 5 to 1 leverage, the same move is roughly 10 percent on your capital, before costs.
Short selling: mechanics in brief
Short selling is a bet that a share price will fall. In the cash market it involves borrowing shares, selling them, then buying them back later to return to the lender. In practice, brokers manage the borrow. In derivatives, you can express a short view without sourcing stock, but you still face margin calls if the price rises. Losses on a short do not have a natural cap, so position sizing and stop levels matter.
Corporate actions, dividends and your P&L
Traders need to track the calendar. Dividends, stock splits, consolidations, rights issues and buybacks all affect positions. An investor who holds shares at the close of business on the day before the ex-dividend date is typically entitled to the dividend. On ex-dividend day, the price often adjusts down by roughly the dividend amount, though real moves can differ with market conditions. Derivative holders usually receive a cash adjustment rather than the dividend itself, based on product terms.
Other actions change the share count or capital structure. A rights issue may offer new shares at a discount, while a split increases the number of shares and lowers the price per share without altering the company’s value. Read notices from your broker and the company’s announcements to understand choices and deadlines.
A simple example: buying, selling and calculating returns
Imagine you buy 200 shares at £10.00. Your broker charges £5 to buy and £5 to sell. Ignore taxes and financing for simplicity.
- Entry cost: £2,000 for the shares plus £5 commission equals £2,005 cash out.
- Exit: you later sell at £10.60. Proceeds are £2,120 minus £5 commission equals £2,115 cash in.
- Gross gain from price move: £120. Net profit after commissions: £110.
- Percentage return on cash outlay: £110 divided by £2,005, about 5.5 percent.
If the spread was 2 pence wide when you bought and sold, that cost about £4 on 200 shares, which is already in your prices if you dealt at the quoted offer to buy and bid to sell.
Common pitfalls and how traders address them
- Chasing thin markets: low liquidity can mean slippage and big gaps around news. Many traders use limit orders to control entry price.
- Ignoring total cost of ownership: repeated small fees add up. Some keep a log of effective costs per trade and per strategy.
- Overuse of leverage: magnifies both sides of the P&L. Set maximum position sizes and review margin headroom before adding risk.
- Event risk: earnings releases and regulatory updates can move prices sharply. Check company calendars and read official announcements.
- Poor exit discipline: pre-define invalidation points and targets, then use stop and limit orders where they suit your plan.
Shares trading is a straightforward idea with many moving parts. The more you understand about pricing, liquidity, orders, costs and corporate events, the fewer surprises you will face when you click buy or sell.