When it comes to starting out and establishing yourself in the world of CFD trading, there are a few things you need to consider. As a method of trading without direct engagement, this allows you to work alongside a CFD broker, engaging in a “Contract for Difference”. But, first, you must choose a market that you wish to trade in, and if you wish to buy or sell, depending on how you think the value is set to change. Now, take care when selecting the size of the trade you’re willing to make. Be sure to note that one CFD is the equivalent to one physical share in equity trades.
Not sure what equity trading is? Well, allow us to explain.
Equity trading is often likened to the trading of stocks, however there are several differences between these two methods. Equity trading consists of the purchase or sale of company stock using one of the major stock exchanges. The owner of the shares can place their trade through a brokerage account or an outside agent/broker.
Now, all this sounds a little too much like stock trading, right? Well, let’s move on to how equity trading differs.
The key difference between equity and stock trading is the investment options and management firms that come along with them. When it comes to trading equity, these specialised firms will offer in-depth market research, trading expertise, with unique trading systems (sometimes even algorithmic), and boast direct access to the trading floor to perform superior executions. Equity trading firms exist predominantly in the form of hedge funds, set up to trade within a larger investment bank, such as the Bank of America.
If you want to know more about Hedge Funds, keep reading!
Hedge funds are a type of investment strategy that use pooled funds to apply various methods in order to earn active returns for their investors. Strategies they often utilise include long-short equity, market neutral, volatility arbitrage and merger arbitrage. Because of the variety approaches that are available to use, hedge funds tend to have more leeway in their investing activities, as well as being more active than traditional mutual funds, that tend to lean towards long term buy and hold approaches.
This can present itself as a double-edged sword. Whilst there are many instances where hedge funds have proven themselves, by outperforming mutual funds and even massively profited from choices made during down markets, they also take a lot of risks. And, with these risks, comes the chance of wiping out a large portion of your capital, if your hedge fund manager finds themselves going through a bit of a dry spell.
Essentially, hedge funds allow a fund manager to flexibly invest in any type of asset that they wish to choose, as long as it fits within their trading strategy or plan, including equity trading, equity option trading and stock trading.
But what about private equity trading firms?
Private equity trading is a type of investment that involves equity securities and debt in operating companies that aren’t publicly traded on the stock exchange. The term has also been used to describe the act of taking a company into private ownership, in order to restructure, before selling it on for profit.
A private equity trading firm is a company that grows its capital by allowing other successful traders to have access to the firm’s capital. In most cases, the firms will design their own formula that they believe is the best to reach success, and require each of their partnered traders to use it. Sometimes the traders will get free reign in regards to strategy, it all depends on what the firm views as the most profitable route to go down. Private equity trading firms tend to utilise technical analysis, predominantly for their ability to track money flow, which acts as an advantage in short-term market trading opportunities.
Lastly, you’ll need to know how and where you can trade equities.
Back in the day, the majority of trading, equity included, was conducted in-person. We’ve all seen those iconic shots of traders in Wall Street screaming down the phone and jumping up and down at their desks, right?
Well, needless to say, the way we trade has now greatly progressed from where it once was. Away goes the chalkboards and reams of papers, and in comes the electronic devices, with handy automated features! Traders are now able to purchase stocks remotely using their computers or a smartphone, via easy-to-use trading platforms, where equity traders can gain access to real-life charts and market execution capabilities, such as trade tickets.
So, we hope that’s given you a helping hand in understanding all things equity trading. Now, all that’s stopping you from placing trades is getting online and opening a brokerage account!