Understanding Equity Markets

Company names and share classes

An equity symbol identifies a particular listed instrument; companies may have more than one share class. Sector labels help organize a catalogue, but do not establish a trading product?s risk or eligibility.

Confirm the instrument type

An instrument based on a company?s share price may be a share or a derivative. Do not assume voting rights, direct ownership, dividend treatment or leverage from a company name. Read the broker specification and product disclosures.

Leverage

Leverage allows market exposure to exceed the margin posted. It magnifies changes in equity relative to that margin and does not reduce the economic risk of a position. Set size from a risk budget rather than maximum buying power.

Example

A $10,000 notional position at 1:100 illustrative leverage requires about $100 margin, before broker adjustments.

Spread

Spread is the gap between bid and ask. It may widen around news, thin liquidity or session changes. Raw pricing can still involve commissions, swaps and execution costs; a zero quoted spread does not make a trade free.

Example

A one-pip spread on a standard EUR/USD lot is approximately $10 when the quote-to-account rate is one.

Introduction to Risk Management

Define an affordable loss budget, a reasoned exit and a position size before entering. Stops can slip and correlated positions can share the same risk. Include fees and avoid treating any percentage rule as universally appropriate.

Example

An illustrative $2,000 account with a 0.5% risk budget allocates $10 before fees and possible slippage.