How to invest in stock market
You have decided to invest your savings in shares? If you have decided to do so, you should know that it is one of the most well-known and popular forms of investment.
Nevertheless, it is necessary that you master the principles. Unfortunately, there are more and more cases when unprepared investors fall victim to the false promises of easy profits.
It should also be the first concept that this article should teach you. There are no methods you can safely try to make money buying stocks and investing in the stock market.
Once you have decided to invest money in online stock trading, our article is a great place to understand everything you need to know to build your first stock portfolio.
Stocks explained for beginners
Buying stocks means that you are buying shares in companies that have decided to issue securities on the stock market. But do you really know what stocks are and how to make money buying them? Before you start your first investments, you need to have a solid knowledge of what stocks are and how this market works.
When we talk about a stock, we are talking about a part of the capital of a company listed on the stock exchange. This sector is regulated and allows you to buy and sell shares, the price of which is determined by the main rule of economics, i.e. supply and demand. The greater the demand for the shares of a particular company, the greater their value.
Once you own shares of a company, you are a shareholder of that company. This makes it possible, in the event that the company has made profits during the year, to be paid a portion of those profits in the form of dividends. In addition, it theoretically allows you to participate in shareholders' meetings, where the most important decisions of a company are made.
But these are aspects that concern large investors who own such a large amount of securities of a particular company that they have some weight at the meetings. If you're reading our guide, you're probably a small investor who wants to start buying stocks. And then what you should be most interested in is the price and value of a stock.
How to buy stocks
We have now clarified what stocks are. Therefore, now you should get acquainted with the way to buy stocks. There are two methods for buying and selling this type of financial product. The primary market and the secondary market.
In the case of the primary market, the companies that have decided to go public provide the purchase of the first shares. In this context, it is the task of the credit institutions, which are in charge of finding buyers for the shares, to "place" the securities. Their job is to create the demand necessary to get the best possible price that reflects the value of the company in question. But this is a market where the bank decides who gets to participate.
However, most investors go public when the shares they want to buy are available on the secondary market. If the company is listed after the primary market closes, it is no longer the banks' job to find buyers. In other words, the secondary market begins when buyers in the primary market start offering their shares.
And at that point, retail investors can generally begin to participate in the stock market. And generally there are three options available:
1. the sale of shares via your home bank
2. shares purchased via the bank's home banking platform.
3. the purchase of shares through online brokers or on online platforms.
When you buy shares as an investor, you are buying a certain share of a company, and the company in which you have invested. The companies that want to participate in this type of trading must be public. However, owning shares does not mean that you own physical possessions of the company. Buying shares gives you the right to part of the company's profit/loss.
Stock trading is divided into two categories. There are preferred shares and common shares. Owners of common shares have the right to have a say in company decisions. So, depending on the amount of investment, they have many voting rights and can be part of the company's development. However, in the event of bankruptcy, for example, they are the last to be paid out. With preferred shares, the opposite is true: owners have virtually no say. Instead, they are able to claim more money from the share profits. In addition, they are the first to receive money in the event of a company collapse.
You can purchase stock in two ways. The typical way is to purchase the securities on the stock market. In this case, you will receive the shares at market prices. The second way is to purchase shares as part of a benefit package or by owning a company. Logically, this is not the common way. Logically, this is not the common way.
Alternatively, you can trade CFDs on shares, which means you don't actually own the shares.
You cannot purchase stocks completely on your own. You need either a licensed broker (broker) or a platform to trade on.
Where you can buy shares
Now you should also learn where you can buy stocks on your own. As you can imagine, until about ten years ago, there wasn't that much choice in where you could buy stocks. All the buying and selling was only through the banks.
Today, the situation has definitely changed with the possibility of doing stock trading completely through your computer from home. The main solutions, as we have already said, are home banking and online brokers, which allow you to skip the brokers completely.
Nowadays, banks offer two ways to buy stocks from them. If you choose to buy directly over the counter, it's very likely that your advisor will offer you a retail investor package put together by the bank. And to get around the problem of not being able to choose which stocks to invest in, you can use home banking service from your bank by buying stocks directly over the Internet. Nevertheless, you should be aware that your bank will definitely charge a commission for the purchase of shares.
If you already know which company you want to trade stocks from and you don't want to help pay for a broker, you can opt for a broker that will allow you to access the financial markets through an online platform. The advantages of using an online platform are really many. First of all, you will have the autonomy to make your own buying decisions without the need of a broker.
But beware, there are an almost infinite number of brokers on the Internet, and the main risk of these platforms is the security offered. If you decide to start trading stocks through a broker, you must choose a platform that is certified and regulated by a reliable government agency.
Why should I trade stocks?
This type of trading is especially lucrative if you happen to buy shares in a company that ends up booming. Generally, you will get the greatest return with the least amount of effort if you buy stocks whose share price is low, and which gradually increases over time. If you play the stock market, you can play around with the money any way you want and potentially get rich as the initial investment grows.
Companies sell stock to raise money. So it's obvious why they should care about getting the highest prices possible. But why should they care what happens after that? Once a stock is traded on the secondary market, its changing price has no direct impact on the company that issued it. The stock price could fall to zero on the second day, but the issuer would still have collected the money the day before. However, you need to understand your trading objectives and the nature of the trade to decide which way to go.
Buying shares from a bank
We have just learned that there are two channels through which you can invest in stocks. If you buy shares at a bank, you should always consult a financial advisor. It is his job to guide you on the way to buy and sell stocks and to open a deposit account for you.
Once the bank advisor understands your needs, he should arrange a meeting with one of the in-house experts who can help you assess the right strategy for your investing needs. What you should know, however, is that bankers will usually try to buy the in-house packages that are put together specifically for small investors in the bank.
However, this can be circumvented by using the platforms that banks provide to their customers to buy products such as stocks, funds and government bonds. In fact, many banks offer investments in ETFs (exchange-traded funds). Funds that are treated like shares in the markets, presenting several securities in a single solution.
And if you decide to invest with a bank, you must take into account the fees you will have to pay for each transaction. The costs in the case of non-competitive banks can be so high that they limit your profits, and therefore the strategies you want to use when trading stocks.
Contracts for difference trading vs. stock trading
Contracts for difference trading and stock trading differ in that in CFD trading you are guessing about the price itself without owning the actual property that the price refers to, and in stock trading you have to acquire the property. In addition, when the economy is booming, stock prices also go up, which would not necessarily be the case with CFD.
You buy more shares because you assume that the higher share prices will cover the investment. And that's true. However, if the outlook is bleak, you'd rather hold back. That's an immediate connection. It's not like that with CFD trading: with less investment you may achieve a fat roast.
Open buy and sell positions with CFDs on stocks in one day.
Now that you have the basic knowledge of the stock market, it's time to consider which strategy to use. With CFDs, you have the choice of opening and closing positions or deciding for yourself how long you want to keep a particular contact in your portfolio.
In this case, the goal is to optimize your trading, and the platforms that offer brokerage on the Internet are the ideal tool for this type of stock trading.
And to do this, you can choose a trading platform that offers the possibility of leverage, an instrument that will multiply the value of your position. You must keep in mind that trading with leverage can increase your profits, but also your losses.
So, if you belong to the category of people with limited resources, you need to look for a platform that charges the lowest commissions and allows you to work with leverage to optimize your exposure to positions within a day.
The short term or long term stock trading?
Opening positions via day trading is one of the strategies you can use. However, for many investors, looking for new investment opportunities every day is not the best solution. The biggest challenge for an inexperienced investor is to understand which investment style best suits his temperament. The evaluation is usually based on the goals you set for yourself when you decided to invest in the stock market.
For example, if you decided to make a profit in the long run, your calculations will be based on certain characteristics of the companies you can invest in. For example, you may be looking for companies with strong balance sheets that offer great growth potential in the coming years.
Depending on the type of stock you have decided to invest in, you can choose the best broker that best suits your needs.
What can determine the share price?
A stock market is a place where investors trade various financial instruments such as bonds, stocks and derivatives. If you want to get into stock trading, you need to understand one thing: The stock market is further divided into primary and secondary markets. The two markets can be influenced by the political fluctuations and economic instability. Macroeconomic factors such as interest rates, inflation, unemployment and economic growth often move the stock markets.
The primary market is where companies first bring shares to the general public through an initial public offering, which are then traded on the secondary market. Often, the stock price of different companies moves in parallel with each other. This is because market conditions generally affect them in the same way. But sometimes a company's stock price benefits from bad news for its competitor when the companies are competing for the same market.
How much of the assets should be invested in stocks?
There is a rule of thumb for this, and it is: 100 percent minus age. According to this formula, a 35-year-old man would have to invest 65 percent of his assets in stocks or invest stock funds. However, this formula should not be considered mandatory.
How much does it cost to invest in stocks?
Once you've decided on your personal strategy and want to focus on short- or long-term investing, it's time to really understand how much it costs to buy stocks and how much you actually need to invest. Cost is one of the most complicated issues that can make the difference between a successful investor and one who doesn't make great profits.
As we have seen, it is very difficult to make cost calculations on a universal level because every broker and bank charges different commissions. As a rule, these are costs that must be paid for each transaction made, and therefore small investors who want to make money with day trading may see a sharp reduction in their profits, as they have to use no small percentage of their funds to pay commissions.
For this reason, when you start investing in the market with a small amount of available capital, you can always consider platforms that offer the possibility of trading CFDs, which allow you to invest in stocks before the market opens.
Frequently Asked Questions: Buying Shares 2021
What does it cost to buy stocks?
Although it often doesn't seem like it, the cost of trading CFDs on stocks is not that high. By offering contracts for difference (CFDs), brokers give their clients the opportunity to trade online with leverage.
How can I trade stocks with contracts for difference?
Trading CFDs means that you are not buying actual stocks. Just need to go to your trading platform and the position you want. Based on your analysis, you can decide whether to buy or sell.
Where can I trade CFDs on stocks?
With the technological advancement, online platforms could be a good choice for trading CFDs. The reason is simple: you don't have to pay for unnecessary commissions.
Is it possible to buy stocks online?
Surely, it is possible to buy stocks online nowadays. You can buy shares online at your local bank, or avoid bank fees and commissions and buy your shares from an online broker.
How can I invest in the stock market without a broker?
In some cases it is advisable to use an advisor, especially when you start investing in the stock market. This is possible through direct purchase programs (DSPP) that some companies offer without generating additional costs.
The above information cannot be considered investment advice, and past results are not indicative of future performance.