Listed shares are shares in companies that are listed on the stock exchange. This means they are acquired by many shareholders from the public. Some examples include big players like Apple, Amazon, and Meta. There are also plenty of smaller companies making their mark in markets. They include American tech company ACM Research, Danish lighting manufacturer LED iBond, and Indian healthcare company Thyrocare.
Unlisted shares, on the other hand, are shares from companies that are privately held, but they can still have many shareholders. These include shares in companies that are not large enough to meet the requirements of major stock exchanges. It also includes penny stocks, which are shares in companies with a low price and trading volume.
Investors can trade listed shares in the stock market using a brokerage account with access to the stock exchange they would like to trade. The process is relatively straightforward, and it is the most common way to trade listed shares.
To trade unlisted shares, investors will have to do so over the counter, through listings found in pink sheets. Pink sheets are a service that provides companies with a market to list their stocks.
Due to the fundamental difference between the types of shares, they have different characteristics.
High investor confidence – As listed shares are more transparent in pricing, they tend to inspire more confidence in investors. They are also perceived as higher quality. This is because the companies that are listed on stock exchanges must pass rigorous regulations and meet strict criteria. Stock exchanges also put their own reputations on the line when they list a new company, which guarantees a company’s legitimacy.
High liquidity – In terms of liquidity, listed options are often more liquid because there are more stock buyers from the public. This makes it easy for investors to transform their shares into cash when needed. It also makes it easy to get rid of stocks when its price plummets.
A range of volatility – The share market is a volatile place, and listed share prices will fluctuate depending on the overall economy, market status, and performance of each individual company. Therefore, there is no way to predict how volatile listed shares are as a class.
A range of investor confidence – How confident investors are in unlisted shares as a class is hard to tell. Different shares will inspire different feelings from investors. The general concern among investors is the limited data on the companies they are investing in. This is because unlisted companies do not need to disclose their financial reports and information to the public.
Low liquidity – Unlisted shares generally have lower liquidity compared to listed shares. Again, this is highly dependent on the specific company, but their lower visibility to the public makes it more difficult for investors to be aware of them. They tend to have lower transaction volumes in general, or they may issue fewer shares. This makes it difficult for investors to transform their shares into cash when needed.
Greater volatility – There is also a risk of greater volatility in unlisted share prices. This is because there is less transparency in the price fluctuations of these shares. This makes it difficult for investors to predict how a company is performing, which can cause anxieties in investor sentiment. That can affect the overall share price.
In contrast, this does not mean unlisted options are low quality. It just means they cannot be traded by public investors as they are not listed publicly. It does, however, have an impact on their liquidity. Unlisted options are often less liquid because they have fewer stock buyers.
By now, investors are familiar with trading listed and unlisted shares the traditional way: buying and selling individual stocks. Investors may buy low and sell high, or they may short sell shares. However, there are other ways of trading shares. Some of them are outlined below.
Trading through stock options
A stock option is a contract that gives the contract holder the right, but not the obligation, to buy or sell stocks. Each contract outlines a few parameters, such as the position a trader would like to take (buy or sell), the stock they would like to trade, the contract’s expiration date, and the price at which a trader will buy or sell a stock (the strike price).
Options trading is a good way for traders to speculate on market movements and trends without committing to placing trades. When trading options, investors only need to spend a bit of money on a ‘premium’ – the price of buying the contract. If their predictions on market movements are wrong, they can choose not to exercise the options contract and abandon their trading plans at little cost.
Trading through indices
Another way investors can participate in the markets is by trading indices. An index is a benchmark or a tracker of a group of stocks that share one characteristic. For example, the S&P 500 is an index that tracks the performance of 500 large companies listed on stock exchanges in the United States. These include companies listed on the NYSE (New York Stock Exchange), NASDAQ, and more.
Indices are often seen as barometers that indicate the overall health of a country’s economy. When the stock market does well, indices will do well too. This is a good way for investors who prefer looking at the big picture and do not wish to invest in individual stocks.
Trading through ETFs
Investors interested in the bigger picture can also consider trading shares through ETFs. ETF stands for Exchange Traded Fund, and it is a basket of stocks that are categorised by a shared characteristic. This can be a sector, a business vertical, or size. For example, an ETF can track stock prices of healthcare companies in emerging economies. They can also track stock prices of the largest British tech companies by market capitalisation.
Investors can trade ETFs containing listed shares on stock exchanges directly. This makes it easy for investors to tap into the ETF market and participate in trading. They are also spared the challenge of choosing individual stocks to invest in, if what they are really interested in is an entire sector.
If you would like to start trading shares, the first step is to determine your budget, and the type of shares you would like to trade.
If you want to start trading listed shares, you should create a live account with a broker and fund it. From there, you can access the major stock exchanges around the world and participate in trading individual stocks, ETFs, indices, and more.
If you prefer to trade unlisted shares, you can look at other services such as Pink Sheets. You can also look for reliable dealers on the market that have access to shares you want to buy.
When you have determined how you can trade shares, you should plan out a trading plan before opening any positions. Your trading plan should include your trading methods, exit strategies, when you will trade, your trading timeframes, and other important details. Having a thought-out plan and sticking to that plan when trading is vital, and therefore you should always ensure you have one in place through every step of your investment journey.
Whether you decide to trade listed or unlisted shares, the process is the same. With patience, discipline, and a bit of luck, you will be able to find opportunities in the markets and hone your trading skills.
