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Learn about shares with Trading Pursuits

Share Market Trading

The most commonly traded security in Australia is called an ordinary share. An ordinary share is an actual portion, albeit a very small one, of a publicly listed company. When you own a share, you own a portion of the company and are entitled to earn a percentage of the profit, in the form of a dividend and will enjoy a capital gain if the value of the share rises. (You will also suffer a capital loss if the value falls). Partly-paid shares exist, but are not very common. The term 'ordinary shares', or simply 'shares', refers to the fully paid variety. In North America, they would be referred to as 'common stock'. The terms mean the same thing.

In the same way, when talking about the exchange on which stocks are traded, North Americans would most likely say 'stock market', while Australians use this and the words 'share market' interchangeably. The French would say 'Bourse'. They are all the same thing.

There is nothing to distinguish one share of BHP from another, which makes the share market highly liquid; that is, many shares can be sold at a moment's notice and my shares of BHP are worth the same as your shares of BHP at the same time. Share trading does not require a great deal of capital to get started and transaction costs are extremely low.

Dividends

Shares may or may not pay a dividend (a cash payment to shareholders from company profits). Dividend yields vary from company to company. It is not compulsory for a company to pay dividends. If they don't, you typically buy the shares for their capital gain component only.

Dividend re-investment plans (DRP) can multiply the capital growth effect of a share investment. DRP is an alternative to cash dividends, allowing shareholders to purchase new shares instead of receiving a cash dividend. These shares are often issued at a discount to the current market price and no brokerage is paid.

Volatility in share market trading

Unfortunately, many people do not invest in shares for fear of losing money. Fears about volatility should not put off potential investors. Volatility is the key to how money can be made from the markets. Markets have always risen and fallen. Successful investors are not afraid of the market. They learn to understand it through share market education and how to work with it.

To find out more about how to invest in the share market, attend one of our FREE share market education seminars.

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