Stocks

The basics, the advantages and the risks.

What are stocks?

A trader's hands marking a candlestick chart on a tablet, trading screens glowing behind

A stock is a share in the ownership of a company.

People who own shares are called shareholders. Stocks are also called equities.

Companies sell shares to raise money, for example to launch new products or to build new facilities.

How do stocks work?

A company sells shares
When a company first sells its shares to the public, it is called an initial public offering, or IPO.
You buy through a broker
A broker carries out your orders to buy and sell shares, for a fee known as a commission.
Shares trade on an exchange
Shares are traded on a stock exchange, where they are priced in real time through active bidding between buyers and sellers.
Two famous exchanges
Goldman Sachs, Disney and Coca-Cola trade on the New York Stock Exchange, and Apple, Amazon and Tesla on the Nasdaq.
Prices keep moving
The value of a stock can go up or down, and it can change often.

A candlestick chart of stock prices on a dark trading screen

What do the key words mean?

Stock exchange: A market where shares and other securities are bought and sold.
Bid and ask: The bid is the highest price a buyer will pay at a given moment. The ask is the lowest price at which a seller will sell.
Stock index: A measure that follows a chosen basket of stocks, to show how a market or a part of it is doing. The S&P 500 is one example.
Bull and bear markets: A bull market is a time when prices are rising and investors feel optimistic. A bear market is a time when prices are falling and investors feel pessimistic.
Stop-loss order: An order to buy or sell once the price reaches a level you set, called the stop price. Investors generally use it to limit a loss or protect a profit. Once that price is reached, it becomes an order to trade straight away, so its final price is not guaranteed.
Diversification: Spreading your money among different investments to reduce risk.

What moves stock prices?

Four main factors can affect stock prices:

Company news and performance.
Industry performance.
Investor sentiment.
Economic factors, such as interest rates.

For example, a faulty product can affect a company’s share price. So can events the company cannot control, such as political or market events.

Investor sentiment means the mood of investors: hopeful or worried.

It can be difficult to predict whether a stock will go up or down, by how much, and when.

What are the advantages?

If you sell a stock for more than you paid, you have a capital gain.

A dividend is a payment to shareholders from the company’s profits, and a company may delay, reduce or eliminate dividends at any time.

Shareholders can often vote on some of the company’s business decisions.

Owning a number of different stocks can offset part of the risk of owning just one.

A candlestick chart of stock prices on a dark screen, close up

What are the risks?

When you invest in a stock, you could lose all of your money, in some cases more than you invested.
Ontario Securities Commission
Large company stocks as a group have lost money on average about one out of every three years, and sometimes the losses have been quite dramatic.
US SEC

Four falls

2000–02: the S&P 500 fell 49%.
2007–09: the S&P 500 fell 57%.
2020: the S&P 500 fell 34% in 33 days.
2022: the S&P 500 fell 25%.

S&P 500, peak to trough, closing prices.

Source: Yardeni Research, S&P 500 Bear Markets Since 1928, 28 October 2022.

How can ETTFOS help?

Successful traders follow a proven system.

One framework, taught since 1997.

A disciplined, rules-based approach to trading, with risk management at the heart of every decision.
Clear rules for entries, exits and risk.
Entry, target and stop, decided before the trade.

The strategies apply to every time frame, from day trading to the long term, without frantic buying and selling.

ETTFOS courses cover the markets in different depth.

Taught live online or in person, in small, interactive groups.

Next step

Explore the program

Advanced Techniques — Stocks

ADVANCED · AFTER QUANTUM LEAP

ETTFOS is not an investment advisory service or a broker-dealer, and it does not tell anyone what to buy or sell.

Stocks

What are stocks?

How do stocks work?

A company sells shares

You buy through a broker

Shares trade on an exchange

Two famous exchanges

Prices keep moving