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What are Equities


All publicly traded firms make shares available to publicly traded financial stock markets, whether in New York, London, Tokyo, Hong-Kong or any number of other locations.


Someone who holds shares in a company is essentially a part-owner of the company in question, and has a claim on part of the corporation’s assets and earnings.


This part-ownership offers shareholders the potential of profits if a company performs well, but the potential of losses if the company performs poorly.


When using a Spread Bet or CFD to trade on stocks, the trader does not have ownership of company shares, so is not a shareholder. Instead, the traders aim to profit by speculating on the movement of their shares of interest.

What Can Influence a Stock’s Price?

Stocks

The price of a share is dependent on its company’s value on the stock exchange. Some of the factors capable of influencing a share price include company earnings, analyst ratings and general industry events. We describe each of these in a little more detail below:

1.COMPANY EARNINGS

1. Company Earnings

Company_Earnings

1. Company Earnings

Earnings are the most important driver of a company’s market value. Each quarter, publicly traded companies provide an account of their performance. Earning reports can provide insights regarding a company’s strategies, as well as its financial health. Strong earnings reports can often cause a share’s price to rise, whereas weaker reports may well lead to a company’s share prices falling.


Share prices are also somewhat indicative of investors’ expectations: if many investors perceive a share’s value to be on the increase, demand for that share may rise and consequently its price would too.


Before earnings reports are released, analysts develop estimates of a company’s performance that quarter, which are then issued by research companies. By influencing investor perceptions, consensus estimates can also influence a share’s value. However, not all consensus estimates are accurate, and if the true profits of a company differ from its predicted profits, its share price will usually quickly recalibrate to this new information.


An example of the effects analyst ratings can have on share prices can be seen with Apple shares, which boasted record iPhone sales in late July 2015: although Apple increased its quarterly profits by a third more than the same period the year before, this was still short of analysts’ expectations, and its share price dropped slightly.

2. ANALYST RATINGS

2. Analyst Ratings

Analyst_Ratings

2. Analyst Ratings

Analysts also offer their views on many major shares via the use of ratings. These ratings form part of research reports, which are comprised of detailed recommendations on different shares.


In a research report, an analyst will thoroughly research a range of companies and then explain whether their shares should be recommended as "buy", “sell", “hold", “underperform” or “outperform”. In short:






Sell
– a recommendation to sell or liquidate shares
Underperform – these shares are expected to perform poorly when looked at together with similar shares
Hold – indicates the belief that a share’s price will move at a roughly equivalent rate to similar shares on the market
Outperform – suggests that a share will out-perform similar stocks on the market
Buy – a recommendation to purchase company shares


Such ratings can be helpful when considering which equities to trade on, but it is important not to solely rely on analyst ratings: different analysts may have completely different views on the future direction of a company’s shares. The added potential of analysts having conflicts of interest means that it is important to be cautious when deciding how much influence a particular rating will have on your trading choices.


Do note that a ‘buy’ rating does not necessarily mean that all traders should quickly follow suit and buy a certain share; although one recommendation may be well-suited to some investors, it may not necessarily work to another’s advantage. It is important to reach investment decisions based on your personal situation, your long-term trading objectives and your strategies. Conducting your own research in supplement to tracking analyst ratings will help you to reach better-informed decisions for your trades.

3. INDUSTRY NEWS

3. Industry News

It is a very good idea for index traders to review industry news headlines regularly – for example, by reading up on technology news if one has invested in Google or Apple shares. News events regarding a specific sector can often lead to a knock-on effect on many companies in that same industry.



Supply and Demand

Shares prices are also driven by levels of supply and demand. When there are more shares available than there are in demand, each share of a company weakens. So, if a wealthy individual or large corporation owns a large percentage of a company’s shares and suddenly sells the lot, that company’s shares may well fall significantly in the near term.


Because many companies depend on the extraction or growth of commodities, reports of shortages or a surplus of a commodity can drive share price fluctuations. For example, a gold shortage is likely to affect many mining companies. A commodity which is in high demand, if there’s less of it available then its price is likely to increase, meaning that mining companies may be able to sell gold for higher prices, and so perform better financially.


Other headlines capable of influencing a company’s share price include company announcements of new strategies, new product releases or updates, competitor announcements, mergers and acquisitions, and financial news regarding changing economic circumstances in a country or region.

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