A CFD, or Contract for Difference, is a type of financial instrument that allows you to trade on the price movements of stocks, regardless of whether prices are rising or falling. The key advantage of a CFD is the opportunity to speculate on the price movements of an asset (upwards or downwards) without actually owning the underlying asset.

Stock trading has been a popular financial pursuit since stocks were first introduced by the Dutch East India Company in the 17th century. This is both an efficient and effective type of investment for both families and individuals.

What Are Stocks?

Stocks, also commonly referred to as equities or shares, are issued by a public corporation and put up for sale. Companies originally used stocks as a way of raising additional capital and boosting business growth. When the company first puts these stocks up for sale, this is called the Initial Public Offering (IPO). After that, shares are traded on the stock market.

People occasionally confuse buying shares with physically owning part of a company, as if that gives them rights over its offices or equipment. Legally, a corporation is treated as a separate person, meaning it owns its assets—not the shareholders. This is called the separation of ownership and control.

This separation protects both the shareholder and the company. For example, if a shareholder goes bankrupt, they can’t sell company assets to pay their debts. Similarly, if a company goes bankrupt, your personal property isn't at risk.

At its core, a stock entitles the shareholder to a portion of the company’s profits.

How Do I Trade Stocks?

A stock market is where buyers and sellers agree on prices. Historically, these exchanges were physical, like the London Stock Exchange (LSE), but today they are mostly virtual and powered by electronic networks.

A company’s shares can only be traded after its IPO, in what’s called the secondary market. You buy shares from other investors—not directly from the company—and the same applies when selling.

Traders invest in stocks because their value can change significantly over time. Profits or losses depend on how the stock performs in the market compared to expectations.

Predicting short-term price movements is very difficult. Long-term, however, stocks generally appreciate, so many investors diversify and hold stocks for years. Some companies pay dividends, which are profit distributions not tied to the stock price itself.

Every trade requires a buyer and a seller. Traders have different goals—some sell for profit, others to cut losses, and some because they expect price changes.

Stock Trading Risk Assessment

All financial investments carry risk, and stock trading is no exception. Even experienced traders don’t get every prediction right.

Many strategies exist, but none are guaranteed. Good risk management includes limiting how much you invest in a single trade.