Stock market trading in this context entails the buying and selling of individual company shares and the share price is determined by the average value paid.

Share prices fluctuate over time; selling shares at a higher price than they were originally bought for will typically generate a profit. Losses, by contrast, are the result of selling shares for a lower price than they were originally purchased for.

Buying and selling shares is one method of potentially generating profits through the stock market, while ownership of a company’s shares can also provide a dividend income. Dividend payments are determined by a company’s management and depend on the company’s profitability. Note that a dividend payment is not guaranteed. In some cases, dividends may be suspended following losses or lower than expected levels of profitability.

Company shares are essentially a stake in the company. Derivatives can also be used to speculate on the stock market. Derivative trading does not entail actual ownership of shares and common examples of derivatives are financial spread betting and CFD trading.

Derivatives trading is often leveraged, which means that profits or losses are amplified. As such you should note that losses may in fact exceed your initial deposit. As such, you should only speculate using money that you can afford to lose.

Before trading derivatives ensure that they match your investment needs as they might not be appropriate for all classes of investor. Make sure that you are fully aware of the risk involved and obtain independent financial advice if necessary.

You can normally spread bet on shares from around the world with companies like CMC Markets and Financial Spreads.

Stock markets can move up or down over the long, medium or short term. There is no absolute guarantee that previous price trends will continue.

Previously stable shares can drop suddenly in response to major news events, such as a stock market crash or even poor US employment data. By contrast, a company’s share price can also appreciate sharply in value if it announces stronger than expected financial results, for example.