Share Trading

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1. What is Share Trading?

Shares, also known as stocks or equities, are one of the most popular financial instruments.

In simple terms, shares (stocks, equities) represent ownership of a company that is listed on an exchange. When companies want to raise capital, they issue shares. Investors who believe that the company will expand further, and therefore appreciate in value, buy shares and own part of that company. The more shares you buy, the bigger part of the company you own.

To buy and sell shares, you need access to a stock exchange, which can easily be achieved through a Stock Broker. MyTradingAdvisor enables you to Trade Shares Online by getting you set up with an account held and funded with Interactive Brokers. Interactive Brokers gives you online access to over 120 markets across 31 countries including New York Stock Exchange (NYSE), NASDAQ, the London Stock Exchange (LSE), the Australian Stock Exchange and More. Opening an account via MyTradingAdvisor gives you full access to global share markets, deep discount commissions and access to our Traders Room where we’ll help you Create an Income from Share Trading.

2. Key Points of Share Trading

Company Shares are exchange-traded and give you an entitlement to share in the earnings of a company and have a say in how the company is run (the amount of say depends on your percentage shareholding and structure under which your shares are owned). The earnings from a company are either retained by the company for additional capital expenditure or used to buy back shares or earnings can be distributed back to you in the form of a dividend. As a shareholder, you participate in both an increase/decrease in the value of a company (capital growth/capital loss) and the dividend distributions from the company to you.



Entitlement to dividends

By owning shares, you become a shareholder, which means you are entitled to a share of the company’s earnings if a portion of those earnings are distributed as a dividend. Dividends are paid out on a quarterly or semi-annual basis, but it varies between companies and the dividend amount is decided by the company and its board of directors. Companies might not necessarily payout all of their profits as a dividend as often a portion of the profit is retained for company expansion.



With most online brokers, such as Interactive Brokers the shares you buy in your account are owned by a custodian or a sub-custodian who takes ownership of the stock on your behalf. A custodian is generally a large institution that holds stock under a trust structure on your behalfs, such as BNP Paribas, Bank of New York Mellon, Interactive Brokers, ABN Amro and a large number of other well-known institutions. You are the nominee under the trust structure, which means you are the beneficial owner of the shares. The advantage is that this is a low-cost structure with a lot of flexibility. The disadvantage is that the stock is not registered under your name at the share registry directly.



Investing refers to buying the actual share through an exchange with the aim to profit in the long-term. Such an investment is usually held for a number of years, in some cases even decades, before materialising profits. When you own shares you are also eligible for dividends (the amount of profit a company distributes back to the shareholders). Investors are typically looking for a combination of capital growth, income from dividends and dividend growth. Dividends are a great way to generate a passive income, but you do need to keep a loose eye on a companies fundamentals to make sure it can keep growing its dividend over time.



Stock Exchanges generally have a Clearing House. Clearing Houses clear and settle Share Transactions executed on the Stock Exchange. The primary role of the Clearing House is to guarantee the settlement of obligations arising under the Stock Transaction registered with it. This means that when your Stock Broker buys or sells Shares on your behalf, neither you nor your broker needs to be concerned with the creditworthiness of the other side of the trade. The Clearing House will never deal directly with you, rather the Clearing House will only ever deal with its Clearing Participants – that is your broker (where your broker is a Clearing Participant), or where your broker is not a Clearing Participant, your Stock Broker’s Clearing Participant.

When a Stock Transaction is registered with the Clearing House, it is novated. This means that the Stock Transaction between the two brokers who made the trade is replaced by one contract between the buying broker (or its Clearing Participant) and the Clearing House as seller and one contract between the selling broker (or its Clearing Participant) and the Clearing House as buyer.

In simple terms, the Clearing House becomes the buyer to the selling broker, and the seller to the buying broker.

You, as the client, are not party to either of those Stock Transactions. Although your Stock Broker may act on your instructions or for your benefit, the rules of the Clearing House provides that any contract arising from an order submitted to the market is regarded as having been entered into by the executing broker as principal. Upon registration of the tock Trade with the Clearing House in the relevant Clearing Participant’s name, that Clearing Participant will incur obligations to the Clearing House as principal, even though the trade was entered into on your instructions.

The Clearing House ensures that it is able to meet its obligation to Clearing Participants by calling a margin to cover any unrealised losses in the market if the transaction incurred a borrowing component though this is more relevant to Margin Lending clients or Stock CFD Traders.



Trading shares, compared with investing, is a more hands-on activity with daily or weekly monitoring of your account, which involves buying and selling with the aim to capitalize on shorter-term fluctuations. The purpose of trading is to generate income to supplement a primary source of income with the possible secondary goal of perhaps one-day trading for a living.



Traders can speculate on markets going up or down. If a trader shorts a stock they are hoping for the stock to fall in value, so they can profit. This can be a great strategy in down markets, but typically most traders look to trade short term microbursts generally to the long side as stocks spend more time going up than down, on average.



Share traders typically employ the use of leverage to magnify potential returns. Because share traders are only holding stock for short periods of time, the downside risk can be lower than a buy and hold approach but only if you can avoid adverse moves or a series of losing trades. As such there is more potential for a trader to utilise margin lending (or even stock CFDs) to produce a return, not only on your own capital but on the borrowed capital as well. Unfortunately, the success rate on trading is rather low, so most traders get themselves into trouble with leverage because leverage also magnifies losses. MyTradingAdvisor provides guidance on Managing Risk, Margin Lending and Compounding Strategies to help you grow your trading account over time without risking the Farm.



Traders need to save money on commissions and interest, hence trading online through a trading platform is the best option. MyTradingAdvisor facilitates trading on sharemarkets around the world through Interactive Brokers. Your brokerage account is held and funded directly with Interactive Brokers. MyTradingAdvisor provides training, troubleshooting, support and advice via our Traders Room but your counterparty risk on your brokerage account is direct with Interactive Brokers, not MyTradingAdvisor.



Profits made from trading in shares are treated as income and are typically subject to income tax and/or capital gains tax depending on the jurisdictions and may also be subject to stamp duty and GST. Investing is typically more tax effective and less fee intensive than trading so carefully consider your options before taking the plunge.

3. Take Both Long and Short Positions

Stock traders can typically trade shares in both Long or Short directions but there are times when Trading Short is prohibited, particularly during bear markets. Keep an eye on whether a Short-Selling ban is in place through your broker before placing a trade to go short.

You can take both “long” and “short” positions on stocks. If you take a long position (i.e. you “purchase” shares), you may profit from a rise in the price of the stock, and you will make a loss if the price of the stock falls. Conversely, if you take a short position (i.e. you “sell” a stock without owning it, or in other words your broker borrows the stock from other clients and allows you to lend the stock against the stock they hold to someone else without you having to own it in the first place), you may profit from a fall in the share price, and you will make a loss if the share price rises. If you are short a stock, you will need to buy the stock to close out the transaction.

Trading Tip: Short Trading sounds complicated, as a trader, you don’t need to understand the mechanics of what is involved behind the scenes as this is your Stock Brokers problem and to be fair it’s pretty confusing. Just understand that you can sell the stock without first owning it and you will make money if the stock falls in price and lose if it rises in price. Given markets tend to rise over time it is more difficult to make money consistently from shorting stock than going long stock.

4. Calculating Profits and/or Losses:

If you Close Out a Stock Transaction, the amount of any gross profit or loss made on a Stock Transaction (i.e. before fees, commissions and other costs) will be equal to the difference between the price the Stock was opened and the price the Stock was Closed Out, multiplied by the number of Shares held. The indicative price for a Stock at which you can enter into or Close Out is available on your Trading Platform.


Assume you purchase 500 shares in AAPL (Apple Computer) on the Nasdaq Exchange in the USA and the price at which you enter into the stock transaction is US$150 (made up for illustrative purposes). You later Closed Out the stock trade by “selling” at a higher level of US$175. The resulting gross profit on the transaction would be US$12,500 being sale level (US$175) less buy level (US$150) x 500 (the number of shares purchased). The net profit is determined after deducting your Stock Brokers commissions (charged on both Opening and Closing Out the transaction) and any other charges as set out by your Stock Broker.


Assume you purchase 100 BHP Shares on the Australian Stock Exchange (i.e. you enter into a “long” position) and the price at which you enter into the stock is AU$25 (example only). You later Closed Out the Stock Trade by “selling” (or exiting the “long” position) at a lower level of AU$20. The resulting gross loss would be $500 being sale level (AU$20) less buy level (AU$25) x 100 (the number of shares purchased). The net loss is determined after adding commissions and any other charges.

5. Share Trading Examples

We have described how Share Trading works and the basic points of Shares.

Shares are a great trading instrument and very low cost to trade with the added benefit of not needing to leverage, thus avoiding interest and carrying costs. Given the sharemarket is already very volatile without leverage shares represent an excellent vehicle with which to start trading.

In order to start trading shares, you need at least $5,000 USD to open an account with Interactive Brokers via MyTradingAdvisor. This will allow you to take five or more trades of $1,000 or less across a number of different stocks. Ideally larger amounts of capital give more flexibility to pyramid into individual stock positions or provide additional diversification.

Further advantages for stocks over derivatives when using leverage is that Margin Lending only requires interest to be paid on the borrowed amount, whereas with Stock CFDs interest is payable on the full face value of the position. For example let’s say you have $10,000 and you buy $20,000 worth of stock, of which $10,000 is your money and $10,000 is borrowed. With Margin Lending, you pay interest only on the $10,000 borrowed amount whereas with a Stock CFD you pay interest on the full $20,000.

6. Key Benefits of Share Trading

Share Trading provides a number of benefits which must be weighed against the risks of using them. The benefits of Share Trading are as follows:


Over the long term, the prices of a portfolio of shares tend to rise over time generating a capital gain on the value of the stock. Unlike derivatives, the Share Market is not a Zero Sum game due to company earnings either being retained for future company expansion or paid out as dividends.


If a stock makes a profit and pays you a dividend out of those profits you receive an income from that stock. Dividend income is passive and can be used to fund your future expenditure.


You can invest in a wide variety of different companies across different industries and sectors giving you diversification. Diversification reduces stock-specific as each stock changes value independently from your investment into other stocks.


The value of individual stocks can appreciate or depreciate rapidly in value giving you the possibility of making money (or losing money) in shorter periods of time as compared with other forms of investment like bonds or property (on a non-leveraged basis).


Margin Lending facilities allow leveraged trading on shares with the potential to obtain a high degree of leverage. Margin Lending enables you to outlay a portion of the overall purchase value (in the form of the Initial Deposit) to secure an exposure to the movements in the value of the Stock without having to pay the full price of actually acquiring the Stock. You can generally borrow as much as 50-70% of the value of the purchase for large-cap stocks.

With most online brokers, such as Interactive Brokers the shares you buy in your account are owned by a custodian or a sub-custodian who takes ownership of the stock on your behalf. A custodian is generally a large institution that holds stock under a trust structure on your behalfs, such as BNP Paribas, Bank of New York Mellon, Interactive Brokers, ABN Amro and a large number of other well-known institutions. You are the nominee under the trust structure, which means you are the beneficial owner of the shares. The advantage is that this is a low-cost structure with a lot of flexibility. The disadvantage is that the stock is not registered under your name at the share registry directly.


Another big advantage of Stock Trading is that modern technology allows the automation of most tasks, from system development to copying other peoples trades, to order execution. With a little nouse, you can use powerful software programs to help you gain an edge in the market, and at the same time save huge amounts of time!


Literally, trade from anywhere! One of the greatest advantages of trading shares online is the ability to trade from anywhere that has an internet connection. If you are one of the lucky few with the skills to make profitable trading decisions you can trade from home, work, a resort, the beach, a golf course, on the move… you get the idea.

7. Margin Lending

Stocks purchased using Margin Lending are subject to margin obligations i.e. you must have sufficient Net Free Equity in your Trading Account for security and margining purposes. You are responsible for meeting all margin obligations with your broker.


There are two components of the Margin Requirements which you may be required to pay in connection with buying Stock on Margin; Initial Margin (Your Deposit) and the Variation Margin.


When purchasing Stock with a borrowed component under a Margin Lending agreement the initial margin is the minimum deposit required to purchase shares. The initial deposit requirements differ depending on the Trading Platform you choose and the broker you choose. In choosing a Trading Platform and broker, you should carefully consider the Margin Requirements of each Trading Platform as Margin Calls could have an adverse impact on your investment. In general, most brokers allow you to borrow at least 50% of the value of the stock for Large-Cap securities. Mid-Cap and Small-Cap stocks will generally require a larger deposit given their higher risk profile.

Your broker may, in their sole discretion and without the need to notify you, change the percentage Margin Requirements for a Trading Platform from to time.

Unlike a CFD trade where the initial margin is lower, with Margin Lending you only pay interest on the borrowed portion of your purchase. This is an advantage over CFDs where you are charged interest on the full face value of your position.


As the value of your Stock position will constantly change due to changing levels of the stock market, the Margin Requirement (being the minimum Net Free Equity you must maintain in order for your broker not to Close Out some or all of your Stock position) required to keep your positions open will also constantly change. This is commonly referred to as Variation Margin. The amount of your Margin Requirements (being the Initial Margin and any adverse Variation Margin) at any one time will be displayed on the open positions report made available through your Trading Platform.

Any adverse price movements in the market must be covered by further payments from you (unless you already have sufficient “Net Free Equity” in your Trading Account). Your stock broker will also credit the Variation Margin to your Trading Account when a position moves in your favour.

Your stock broker will determine the Variation Margin for a Margin Lending Transaction by reference to changes in the value of the Stock. In other words, each contract is effectively “marked to market” on at least a daily basis. “Marked to market” means that an open position is revalued generally in real time or at least on a daily basis to the current market value. The difference between the real time/current day’s valuation compared to the previous real time/day’s valuation respectively is the amount which is debited (in the case of unrealised losses) or credited (in the case of unrealised profits) to your Trading Account. The valuations are calculated using the closing value (at the close of trading on each day) of the Underlying Instrument as determined by the relevant Pricing Source. Intraday “marked to market” revaluations will be based on the last available value of the Underlying Instrument as determined by your stock broker in their sole discretion.


Margin Calls are made on a net Trading Account basis i.e. should you have several open positions with respect to a particular Trading Platform, then Margin Calls are netted across the group of open positions. In other words, the realised and unrealised profits of one Transaction can be used or applied as Initial Margin or Variation Margin for another Transaction.

When trading with any broker, it is your responsibility to monitor your Variation Margin obligations. Any notification of a Margin Call could be via a ‘pop up’ screen or screen alert which you will only receive notice of if you access your online Trading Account via your Trading Platform. There may be instances where your broker does not provide you with a Margin Call notifying you of an obligation to meet a Variation Margin. This does not waive your obligation to meet that Variation Margin. If you fail to meet a Variation Margin yur broker may in their absolute discretion (but without an obligation to do so) Close Out, without notice, all or some of your open Transactions.


If you do not meet Margin Calls immediately, some or all of your positions may be Closed Out by your Stock Broker without further reference to you.

Most Stock Brokers generally applies risk limits (referred to as Default Liquidation Thresholds) to ensure that the percentage of your Trading Account balance which you are using at any one time to satisfy Margin Requirements (Margin Utilisation) does not exceed certain pre-defined levels. If your Margin Utilisation exceeds the Default Liquidation Threshold for your Trading Platform, a Margin Call will generally be applied to your Trading Account. If you do not meet a Margin Call immediately, your Stock Broker may Close Out some or all of your open Transactions without notice to you.

The Default Liquidation Threshold is determined by the Stock Broker for your Trading Platform. It is implemented for risk management purposes and may be varied by the Stock Broker at any time.

With Shares if you fail to meet a Margin Call, then your stock broker may in their absolute discretion (but without an obligation to do so) Close Out, without notice, all or some of your open stock positions and deduct the resulting realised loss from your Trading Account. You may be required to provide additional funds to your stock broker if the balance of your Trading Account is insufficient to cover those losses. If a Close Out occurs you will not be able to enter into another Transaction until you transfer additional funds to your broker.

8. Risks of Trading in Stocks



Trading on the Share Market involves a high degree of risk.

If there is an adverse change in the value of the Stock, you will show an unrealised loss on your account. If you trade Shares using Margin Lending and you receive a Margin Call, you will be required to transfer additional funds immediately to your Stock Broker in order to maintain your position i.e. to ‘top up’ your Trading Account balance. Those additional funds may be substantial, particularly in situations where there is a large gap in the price of the stock. If you fail to provide those additional funds immediately, the Stock Broker may Close Out some or all of your open positions. You will also be liable for any shortfall in your Trading Account balance following that closure.

You should be aware that the risks you face differ depending on which Trading Platform you choose to trade through. These include pricing and counterparty risk.


The following is a description of some of the other significant risks associated with trading shares offered by an Online Stock Broker.



If you incorrectly place your intended order you are responsible for the result of the incorrectly placed order, including all costs to close out the position and any resulting profit or loss on the outcome.



The Stock Broker will have absolute discretion to Close Out your open positions at values they determine if there is a shortfall in your account. The effect of your Stock Broker exercising their discretion is that they may Close Out your open position and you may suffer loss as a result (including actual loss or opportunity loss if the value improves from the value the open position was Closed Out). Your chosen Stock Broker is not responsible for any such loss.



When you place an order (i.e. request to open or Close Out a position), your broker has the absolute discretion of whether or not to accept and execute such request. The effect of your Stock Brokers discretion is that an order you give may not be executed and you may suffer loss (whether it be actual loss or an opportunity loss) as a result. They are not responsible for such loss.



Stop loss orders are often used to attempt to limit or minimise the amount which can be lost on an open Transaction. Stop loss orders may not always be filled and, in any event, may not limit your losses to the amounts specified in the order.



Under certain market conditions, it could become difficult or impossible to manage the risk of open positions by entering into opposite positions to Close Out an existing position.



In instances where you trade based on a Stock priced in a currency other than your Trading Account Currency, your profit or loss will be determined by movements in the value of the Stock and also by the impact of movements in the Exchange Rate. Adverse Exchange Rate movements could cause you to incur significant losses.



Under certain conditions, it may become difficult or impossible for you to Close Out a position. This can, for example, happen when there is a significant change in the Stock price over an extremely short period of time.



If the Stock Broker becomes insolvent, you might lose some or all of the balance of your Trading Account. You also might face considerable delays before you are able to access the amount (if any) that is able to be recovered from the Stock Broker.


There are a number of risks that arise from the processes by which the derivatives are entered into or settled, including risks associated with using internet-based Trading Platforms. Such risks include, but are not limited to:


Risks related to the use of software and/or telecommunications systems such as software errors and bugs;


Delays in telecommunications systems;


Interrupted service;


Data supply errors; and


Faults or inaccuracies and security breaches.

There are a number of risks that arise from the processes by which the derivatives are entered into or settled, including risks associated with using internet-based Trading Platforms. Such risks include, but are not limited to:


Below we have summed up the differences between Share Trading and Share CFD Trading to help you decide what product is most suited.



9. Styles of Share Trading

Today Share Traders have the ability to create income from Share Trading in a number of ways ranging from active to passive.


Trading Shares with the purpose of creating income can be acheived, not just by playing swings in the market but also by either targeting dividend paying stocks or selling options to either acquire shares (by selling puts) or offering someone the right to buy your shares (by selling calls). Each time you sell an option you receive a premium, which can add up to a significant level of income over time.


Discretionary Trading can be an active approach to trading Shares. It involves making your own decision about the direction a Stock might take and placing orders via your online platform manually (in general) in an attempt to profit from short term price fluctuations. This is an active approach to trading that is very hands-on and involves monitoring the markets on an intraday, daily or weekly basis. The advantage of Discretionary Trading is that the human brain can assess the impact of variables outside the data made available to a computer program, such as qualitative analysis of fundamental data, external data sources like bank economic forecasts and last, but not least the superior capability of the human brain when it comes to pattern recognition. The disadvantage of discretionary trading is the impact of fear, greed and ego on the decision-making process, meaning even discretionary traders can benefit from a set of guidelines covering trade setups and risk management.


Hybrid approaches to trading can also be utilised, and possibly with more success than each style of trading on its own. This can include making an assessment on a currency pair’s underlying conditions based upon fundamental research, valuations and forecasts from economists, Commitment of Trader (COT) reports, sentiment or other external information and then utilising a suitable type of trading system to enter and exit the market automatically according to your view. For example say you expect the price of Tesla (TSLA) to fall you might choose a trading system that only trades the short side of the market until your view is realised, then you’d switch it off. The other advantage is if your view does not materialise utilising a trading system might result is smaller losses than simply being married to a particular view and holding onto losses in that stock.


Also known as Algorithmic Trading, RoboTrading and Autotrading. Systems Trading involves the use of a computer program, which makes the buy and sell decisions based upon price action, technical indicators or quantitative analysis. The advantage, if you can find a reliable trading system is that you can automate the trading on your account and the computer will monitor the markets placing orders on your behalf, which means you can devote more time to research or other endeavours. The disadvantage of trading systems is that their success rate is not high, and they’re subject to technology risks so require oversight.


Perhaps the most passive form of Share Trading is known as Copy Trading or Mirror Trading. Copy Trading is the process of finding other traders with a track record and following their trades automatically on your account. Essentially you become your own portfolio manager and select a variety of traders to copy on your account. Copy Trading services allow you to view the track record of other traders and if you’d like to follow a trader simply click Copy on the desired strategy, enter your account number and the trades will be automatically copied into your account. You can start and stop copy trading at any time.