CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Learn more about stocks with this in-depth article.
In this lesson you’ll learn:
Each segment of the financial market is governed by its own laws. Take currencies - their value is determined mainly by what’s going on in the country’s economy, by the central bank policy or by moves in interest rates. Commodities, on the other hand, focus mainly on a relationship between supply and demand. Then there are stocks. Stocks are interesting instruments as they are not only connected with what's going on inside companies, but they can also be a reflection of the economy as a whole. Additionally, while a larger than 5% change in the value of a currency or a commodity is considered to be unusual or extraordinary, it’s quite commonplace for stocks.
What are stocks?
Let’s begin with a simple definition: a stock is a security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. That means that when you buy a stock of a specific company, you become its owner. You own part of the company’s assets, and have a right to participate in its earnings (you obtain a right to receive a dividend). Of course, there are many types of stocks, but it’s worth focusing on common stocks as they have the biggest market share.
As you become a majority stakeholder or an owner of a company, that makes trading stocks a bit more complicated. You not only decide on what to do with the securities you have bought, but also have a right to decide on company’s future by participating in the general meeting of shareholders. Common stock owners can vote on the corporation's affairs, such as the Board of Directors, mergers and acquisitions and takeovers.
What affects stocks?
As always, there’s no easy answer to such question. The truth is that there is a lot of factors that could affect stocks prices. Let’s highlight the most important ones:
Of course there’s a lot of factors to watch, but these four are crucial to follow while trading stocks.
Look at the ratios:
Valuing a company is definitely not an easy task. Financial statements, outlook for earnings, industry conditions and all the variations that come with that can be overwhelming. However, there’s a simple way to compare stocks between each other and to weigh up if an investment in a specific company would bring you profit. You could use financial ratios to determine if there’s a trading opportunity. Let’s look at the most popular ratios that could be helpful in your analysis:
There is of course a lot of ratios that could be used in analysing stocks. You should choose those that will be useful in your trading strategy, just like with the one mentioned in the Dividend Yield’s case.
CFDs on stocks:
XTB offers CFDs on stocks, though these are not exactly stocks themselves. Although they move just like the underlying asset, they could also give you additional possibilities. Let’s look at the main topics connected with equity CFDs.
As you can see, there are some differences between CFDs and typical stocks. However prices of both instruments normally behave the same way. That means that you could enjoy most of the benefits connected trading stocks without actually owning them.
This article is provided for general information and educational purposes only. Any opinions, analyses, prices or other content does not constitute investment advice or recommendation. Any research has not been prepared in accordance with legal requirements required to promote the independence of investment research and as such is considered to be a marketing communication. XTB will accept no liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly for use of or reliance on such information.
Please be aware that information and research based on historical data or performance does not guarantee future performance or results.
Test your knowledge of this lesson with our quiz:
START QUIZWhich ratio shows how much a company pays out in dividends each year relative to its share price?
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