A common way for publicly quoted companies to raise capital is through the stock market. Companies raise funds by selling shares to institutions, pension funds, the public etc and those shares are subsequently traded on exchanges. A company’s share price usually changes over time, either increasing or decreasing in value. The fluctuation of share prices can be gradual, erratic or sudden. The credit crunch that began in the early part of this century resulted in falling share prices for many companies, especially banks and other businesses in the financial sector. Share prices in many sectors had been increasing over a ten year period before suddenly dropping. This illustrates both how quickly prices can change and how future prices are difficult to predict. Bull and bear markets are descriptions of market trends that are widely used by financial media, commentators and investors. Having read so far, one may ask a question ‘What is a Share?’ Undoubtedly this seems to a puzzling question even for the professional investors. But a simple definition states that a share is said to be a share in the profits of successful companies to which associates.
Bull and Bear Market
A bull market is used to denote a rising market trend. Investors can frequently be described as bullish towards a particular company’s share price or sector, such as the banking sector. This occurs when there is a widespread belief that a share price will rise, or that the financial state of a company/sector/stock market is fundamentally positive. In a similar manner, traders can be bullish as well as bearish towards an entire stock market index, such as the FTSE. Bearish investors or speculators are skeptical towards the future prospects of a company’s shares market. A bear market can follow directly on from a bull market in the case of suddenly shifting perceptions. A bear market can also be triggered by sudden news events. Note that with spread betting companies and CFD brokers you can speculate on shares to go up or down. As such if you think the price of Microsoft will fall then you can take a position on that.
‘Blue chip’ is a term commonly used to describe companies that are considered to be at the forefront of their industry. Blue chip companies are supposed to be the leaders in terms of financial performance, profit growth, dividend payouts and/or market share. In the America, companies such as General Electric (GE) and Coca-Cola are blue chip companies. European examples include Vodaphone, Siemens and Philips. Share trading in blue chip companies is sometimes perceived to be tricky. It’s often felt that the shares are priced at a premium because they are better known, may have better management and are possibly a safer bet. The risk in investing in or speculating in blue chip companies, like most companies, is that markets will move against them, either because of external factors, such as recessions or crises, or because of deteriorating products, services or management. Financial Spread Betting and CFD trading are leveraged forms of trading that carry a high degree of risk and you may lose more than the original amount of capital you invested.