The Industry’s Basics – EuropeFX Ultimate Guide

The Industry’s Basics – EuropeFX Ultimate Guide

What is a share?

A share by definition is “an indivisible unit of capital, which expresses the ownership relationship between the company and the shareholder.” In general, the value of a share of a company tends to vary depending on how much demand there is for that company’s goods and/or services. This means that shareholders are eligible for a percentage of the company’s profits. To put it into a practical example, let’s say Apple Inc issued 1000 public shares and from those 1000 you bought 100. That would essentially mean you are entitled to dividends equal to 10% of any profits.

 

A company can issue two kinds of shares or stocks – common and preferred. Although there are some similarities between the two they are actually quite different. Both still serve as an expression of ownership between the company and the shareholder, and both can be used as investment vehicles, but there are some differences that need to be made clear. Holders of Common shares or stocks are granted voting rights while holders of Preferred shares or stocks may get no voting rights at all, in some cases. But there are some merits to being a Preferred stockholder, and one of them is that on ‘payday’ (when the company decides to pay out its dividends) the company will prioritize Preferred stockholders over Common stockholders. This is most applicable when the company is, let’s say on the verge of bankruptcy, and wants to liquidate to pay off all creditors; common stockholders are the last to get paid.

 

Bull, bear or flat market?

When a tradable instrument on the market is on a solid upward trend for an extended period of time, we refer to this as a bull market. Should the value of that same tradable asset make a sharp downward move and continue for an extended period of time, then we refer to this as a bear market. If none of the two aforementioned trends can be identified on the charts, and the value of that tradable instrument is more or less even, then we refer to this as a flat market, otherwise known as every trader’s nightmare.

 

The terms bull and bear have a funny and interesting backstory. The term bull market came to be because as we all know, a bull charges and when it does it will charge with its horns swaying upwards. A bear, on the other hand, will charge and claw, and clawing tends to be from top to bottom (unless we’re talking about an uppercut, which we’re not). Flat is self-explanatory. No meaningful movement towards any direction which in essence, makes the asset not tradable.

 

The Foreign Exchange Market

The Foreign Exchange Market or Forex is the stock exchange on which several different countries across several different time zones trade their national and global commodities in numerous currencies. A currency is basically, the denomination or ‘monetary division used in a particular country’ (such as the U.S. Dollar in the United States or the Euro in members of the European Union). When there is more than one currency being used in a transaction, then they tend to be expressed as a ratio which is called ‘cross-rate’ and it’s what states the amount of a second currency against the first listed.

 

To make this into a solid example, the USD/JPY reflects how many Japanese Yens you can get for one Dollar. The first currency displayed in the ratio is called the base currency and there is always one unit of it in any given ratio. The second part of the currency ratio is where we see our quote currency, which, as we just said expresses how many Yens you can get for one Dollar. This determiner of what the equivalent is, is quoted as currency conversion.

 

Several countries in Europe, which have now cemented their currencies to agree on the Euro (since 1999) trade on the Foreign exchange. Britain, which to this point has opted to continue using the Great British Pound (GBP) (and is also about to completely leave the European Union (EU)), also takes part in global trade, as well as the United States (U.S), Japan, and even Australia.

 

Determining whether or not it is worthwhile to invest also depends on the currency conversion rate. The value of a nation’s currency is determined by its government and federal bank (the Federal Reserve, better known as the FED, is the federal bank of the United States (U.S) for example). A meaningful change in the rate of conversion by a government is referred to as valuation – devaluation is taking value and strength from the currency, and revaluation increases the purchasing power of a currency. If the same change to the rate of conversion occurs naturally through let’s say economic events or the volatility of the market, it is then called appreciation (if the value increases) and depreciation (if the value decreases).

 

A Career In The Markets?

You’re probably thinking a reasonable income at the end of the month if you’re thinking about trading as a career. Let me tell you this, without the assistance of industry professionals, it is nearly impossible to trade on the open market and come out on top. After all, to get it right alone there is a lot of trial and error that you have to go through, many pitfalls in which you have to fall in; UNLESS you have a professional beside you to point you in the right direction.

 

That’s where we come in. On our official website, you can find education tools ranging from video courses to daily market reviews and even a glossary if you’re looking to enrich your trading vocabulary.

 

Still not trading with EuropeFX? Get started today however, please note that trading is risky.

 

 

Disclaimer:

This article is for educational and informative purposes only and should not be considered as investment or trading advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.99% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Find more details about risk here.

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