The trading of shares revolves around the value of a companies’ stock, which is in turn also influenced by how well a company is perceived to be doing. But rather than purchasing a stock outright, traders can spread bet or trade a contract for difference (CFD) to speculate on the price of the security.
Simply put, if a trader believes that a company’s stock will go up in value, they will ‘buy’ that stock. If it does indeed subsequently rise, they will make a profit. However, in the event that the stock ends up dropping in value, if they decide to close out the trade at this point in time, they will incur a loss.
The opposite also holds true; if a trader suspects that a firm’s share price is about to fall, they will often be able to ‘sell’ the stock in the hope that that it will decrease in value and they can then ‘buy’ it back for less. However, should the stock do the opposite, and rise in value, if they then decide to cut their losses and close the trade they will then lose money, since they would be buying the stock at a higher price than that at which they sold it.