How to Trade Equities: A Beginner’s Guide to Stock Trading

There are many different types of trading, and the object being traded is called the asset. These include equities (e.g., stocks), real estate, cash, fixed income (e.g., bonds), commodities, and currencies. Each asset class holds a cornerstone position in the world’s financial markets. Anyone can trade these asset classes through a stock exchange or online trading platforms. One interesting asset class is equities.

Equities, also known as stocks, are a type of financial asset representing company shares. Equities are thus a very important asset class and one of the most traded assets in the world. Any public or private company can issue shares in the market, which the investors and traders buy for the share’s price. The only difference is that private companies can only issue a small number of shares compared to public companies. The share price fluctuates based on various factors, including economic trends, internal and external affairs of the company, and general market conditions and sentiments. 

Equities can be traded on any stock exchange worldwide and through online trading platforms. Traders trade equities for long-term trades, dividends, or short-term trades. The equity market can be highly volatile as the price of a share is dependent on many factors. This makes equity trading a great contender for speculative trading through CFDs. Contract for difference or CFDs lets the trader speculate price movements and take profit without actually owning any asset. 

Trading in equities is very advantageous for the traders in the long and short term if done strategically. It allows the traders to grow their wealth over time as stocks may offer higher returns than other asset classes. The companies that issue the shares also take advantage of a soaring share price as they use the capital to expand or conduct operations within the company. Most importantly, stock markets influence the economic growth of a country. 

However, there are a few disadvantages to trading equities, where market volatility is the biggest. There are many different facts related to trading equities, and traders from all levels of expertise should be familiar with them. In this article, we bring you everything you need to know about equity in the stock market, how trading in the equity market works, and much more. 

What is Equity in the Stock Market?

In the stock market, equity represents ownership in a company. It is a financial asset heavily bought and sold in the financial market. Financial markets are made of buyers and sellers who manipulate the price of an asset by trading different assets. Many other factors initially affect the asset’s price, like world news, socio-economic developments, corporate news, etc. A few of the most commonly traded assets include equities, real estate, currencies, bonds, and commodities. 

Equities are shares representing ownership in a publicly traded company. Real estate asset class includes holding real estate in the country or internationally. Currency trading is also known as Forex or foreign exchange, where traders profit from the exchange rates of different currency pairs. Bonds are debt securities issued by the company or the government. Commodities are basic goods that are traded in large volumes. Almost every asset class has some degree of volatility and risk, but they also make a profit and diversify your portfolio. 

Each asset class is unique in its own way, but equities and bonds are sometimes considered to be the same. However, they are not. Bonds are of two types: government and corporate bonds. Corporate bonds are debt securities issued by companies to raise capital for expansion, acquisitions, and other corporate-related activities. Investors lend money to these companies and receive periodic interest payments. Corporate bonds do not represent any ownership in the company for the bondholder. Instead, the bond is seen as a loan only. 

Unlike corporate bonds, equities represent ownership in a company, which is the main difference between the two. Investors may trade in equities for three main reasons:

• Long-term profit goal
• Short-term profit goal 
• Dividend earnings

Traders holding the equities for the long term may see their investment getting a good push over time. Traders with short-term holding of the equities profit from price changes and robust buying and selling of the asset. Finally, companies offer long-term equity holders dividends, essentially a part of their profits. 

How Equity Trading Works

Equity trading involves the buying and selling of shares of public companies on stock exchanges around the world. The most famous stock exchanges include the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE). Traders can conduct equity trading through online platforms where they must make a brokerage account and fund it with capital. The online platforms also work through the exchange, which is open for a limited time in a day and only 5 days a week. Some exchange markets may also offer traders pre-market and after-hours trading opportunities so they can benefit from news developments. 

There are quite several order types that a trader can place in equity trading. A few of them are specifically for risk mitigation and aversion. These orders include market order, which is an order that is executed at the current market price; limit order, which is an order that is executed only at a specific price or better; stop-loss order, which is a risk mitigation technique and is an order where a sell order is triggered when the price of a stock reaches a pre-specified price; Take-profit order is also a risk mitigation technique and is a sell order which is triggered when a certain pre-specified profit value is reached; and finally, at railing stop order is a risk mitigation order which is triggered to keep profits and lower losses dynamically. 

Equity trading online requires a valid brokerage account with correct details and capital. Online platforms are great for this because they offer various markets, stock exchanges, and technical analysis tools to help traders diversify their portfolios and make viable financial trading decisions. MetaTrader 5, TradingView, and eToror are the most widely known trading platforms. 

The equity market can be highly volatile as the price of a share is dependent on many factors. This makes equity trading a great contender for speculative trading through CFDs. Contract for difference or CFDs lets the trader speculate price movements and take profit without actually owning any asset. Therefore, traders trade equities with short-term positions and capitalise on price movements. This keeps the market liquid but also poses chances of risk and loss. 

As explained, equities are a leading asset class in trading, and almost every trader aims to make a profit from them. For beginners, we suggest practising equity trading on a demo account before they enter the real world of trading with real capital. A demo account is an account that can be made on online trading platforms and mimics real-world situations and challenges in financial trading. Beginners can learn and practice here and then apply their knowledge to real-world trades. 

Steps to Trade Equities

Trading equities can be smooth once you understand how it is done. The following is a step-by-step guide on the process for you to follow:

Step 1: Set Up Trading Account

The first step is to set up a trading account. Many great platforms are in the market today, but each has something unique. Each platform has associated fees, commissions, features, and security regulations. Do thorough research before settling on a platform. After selecting a brokerage platform, set up your account and provide accurate personal information. Once the platform has everything it needs, you will get an email of your account confirmation and activation. 

Step 2: Learn to Use the Software/Platform and Tools 

Before jumping into trading, learning how to use the platform and its tools is best. This will not only help you have a smooth trading experience but also help you make logical and profitable decisions. Familiarise yourself with the platform’s interface and features like charting tools, technical indicators, and market data feeds. Most platforms also offer demo accounts where you can simulate trading without using and risking real money. 

Step 3: Choose the Companies for the Trade

After thorough research, select a company that aligns with your trading goals, interests, and risk tolerance. Try to understand the driving factors behind these markets and their prices. Pick a few companies at the start and keep your research focused. This will help you make an informed choice. 

Step 4: Develop a Trading Plan

A trading plan is one of the most important trade steps. Start by outlining your goals for the trade and your risk tolerance, and think about your preferred trading style. Your trading plan and style will be refined over time, but it is important to learn from your mistakes and continue learning and researching. Focus on your strengths and develop a well-defined strategy that will help you stay disciplined. 

Step 5: Execute Your First Trade

Once you feel comfortable with your knowledge, the selected company, and the platform, execute your first trade. Deploy risk mitigation strategies to minimise loss and monitor your trade closely. Use stop-loss orders, position sizing, and portfolio diversification to avoid mishaps. 

Understanding Equity Market Tools

Equity markets have come a long way since online trading platforms emerged. These platforms offer various technical tools that can be used to the trader’s advantage. Here we mention a few of the most famous market tools:

Price Charts 

Price charts portray the asset’s price movements over time and are one of the most important tools in any trade. Many different analyses can be done on a price chart, but the most useful is drawing and anticipating trading patterns that hint at possible trend reversals. 

Order Books

Order books are a real-time list of all buy and sell orders placed within a specified period of time. They provide traders important information on supply and demand, market liquidity, and support and resistance levels. 

Technical Indicators 

Technical indicators are great for equity markets as they offer mathematical insights into trade and pattern developments. 

Relative Strength Index (RSI) 

The relative strength index (RSI) measures overbought or oversold assets. RSI measures this momentum on a scale of one to a hundred. If the RSI value is below 30, the general sentiment is that the asset is oversold, whereas if the RSI is above 70, the asset is overbought. Using these metrics, traders can potentially place their entry or exit points in a trade. 

Moving Averages (MA)

Moving averages over a period of time shows the overall market direction. These work great when the duration is over 50 days, as they are mostly used to identify long-term trends. 

Moving Average Convergence Divergence (MACD)

MACD, or moving average convergence divergence, explains the overall market trend and momentum strength. If the MACD line crosses above the signal line, the signal is considered bullish, but if the MACD line crosses below the signal, the signal is considered bearish. 

Economic and Market News

This is one of the most important tools that you can use to monitor price changes and what affects these changes. You can use the in-built news feed on your trading platform or can access generally available news from tv, online applications, and more.

Equities vs Shares: Key Differences

Equities and shares are terms used interchangeably while describing one’s stake in a company, but in the financial world, these are two different terms with key differences. As explained, equities are a type of financial asset representing company shares. It is a broader term that covers the ownership of a public or private company. On the other hand, shares are individual ownership units in a company. 

The word equity is mostly used to describe market trends and investment portfolios of individuals and companies. In contrast, the word share describes a single unit of a company owned by an individual. This is a subtle but key difference between the two. Furthermore, equity is also used to describe stakes in mutual funds, ETFs, and more, whereas shares are mostly used to refer to company stocks. 

Here are the key differences between equities and stocks in a tabular form:

Characteristics	Equities	Shares
Meaning	Describe ownership in a company	Describee individual units of ownership in a company
Scope	A broad term	A specific number
Ownership	Overall ownership	Fractional ownership
Types	Mutual funds, ETFs, and company stock	Company stock

Risks and Considerations

There are quite a few different types of risks and considerations involved with trading equities, which we explain here. 

Market Volatility 

This is the biggest risk when it comes to trading equities. The price of the shares depends on several factors, making the market highly volatile. Any changes in the government, economic market, and company can have dire effects on the price of the share. Which means that your investment is always exposed to some level of risk. 

Leverage 

Leverage is a reading strategy that allows traders to hold a large position but with a small investment. This raises the profit margins but also increases the loss margins drastically. Traders dealing with leverage trades should take very calculated decisions. 

Policy Changes 

Governments and companies can change policies at any time. This may affect your position in the long or short term. 

FAQs About Equity Trading

What Is the Difference Between Equities and Shares? 

The main difference between equities and shares is that equities are a broad term used to define ownership in the company. In contrast, shares represent individual units of ownership in the company. They are, therefore, highly used interchangeably. It is important to understand their individual meanings because they are used varyingly in different conversations. 

How Do I Start Trading Equities? 

You can start trading equities by simply making an online brokerage account on a trading platform of your choice. The account will require your details and capital. After funding the account, choose a company and set up your trade. Execute your order and monitor it closely. Use technical analysis tools provided by the platform to adjust your trade accordingly and keep yourself updated with the latest news developments that may affect the company you hold equity in. 

What Tools Should I Use for Analysis?

There are several tools that you can use for technical and fundamental analysis. These tools include price charts, order books, technical analysis, and economic and market news. 

Equity trading involves the buying and selling of shares of public companies on stock exchanges around the world. The most famous stock exchanges include the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE). Traders can conduct equity trading through online platforms where they must make a brokerage account and fund it with capital. The online platforms also work through the exchange, which is open for a limited time in a day and only 5 days a week.

The equity market can be highly volatile as the price of a share is dependent on many factors. This makes equity trading a great contender for speculative trading through CFDs. Contract for difference or CFDs lets the trader speculate price movements and take profit without actually owning any asset. For beginners, we suggest practising equity trading on a demo account before they enter the real world of trading with real capital. Beginners can learn and practice here and then apply their knowledge to real-world trades.