The stock market is a financial and market system that allows people and organizations to perform various transactions with securities. Like other market relations, here everyone can benefit: companies attract investments, and holders of securities can make a profit. Such trades can help you get rich, increase your investment, but if you do not understand the mechanism of the stock market, you can fail and lose money. To avoid the second scenario, you need to learn about the subjects of trading, the types of the market, its functions, how to trade, where it can be done legally and what recommendations should be followed.
What is traded on the stock market
As is already clear from the above, operations are performed on securities…
They can be presented in the form:
- Ordinary shares. The most popular type of assets, which involves the purchase of a share in a company in exchange for dividends – part of the profit and participation in the meeting of shareholders.
- Preferred shares. They differ from ordinary ones in that the dividend income is stable, but the shareholder is deprived of the right to vote at meetings and cannot influence the course of events in the company.
- Bonds. They represent an IOU. The owner of the bond receives its value and high interest rates from above for a certain length of time. Produced by the government and corporations. Unlike stocks, when a corporation goes bankrupt, the bondholder has a chance to get the money back.
In addition, bills of exchange, investment shares, futures, checks are considered securities, but the main operations in the stock market are carried out with stocks and bonds.
Stock markets have several varieties. It all depends on which side to look at.
If we talk about the movement of capital in the market, then there are four types:
New capital is placed on the primary market; its appearance dates back to the time of the issue of securities.
In the secondary market, the turnover of securities that have passed the initial public offering, their purchase and sale takes place.
The tertiary market, in another way it is also called over-the-counter, is responsible for transactions with securities that have not passed registration.
The Quaternary market implies the turnover of large blocks of shares between investment funds, credit unions, pension funds, insurance organizations and others; individuals do not have the opportunity to participate in these market transactions.
Stock markets also differ on a territorial basis, depending on the country where the securities are traded. The most popular of them are the stock markets:
- Great Britain, etc.
Above are the national stock markets, that is, trading within the country. In addition to them, there are local markets – within regions and cities, international – capital trade is carried out on a large scale between countries and continents.
Stock markets also differ in the form of organization. If viewed in this vein, then they can be:
- exchange – organized trading in securities on the stock exchange;
- over-the-counter – trading is carried out outside the stock exchange, most often, in computer systems that have permission to trade.
Also, the classification is influenced by the term of securities circulating on the market:
Based on the above information, we can conclude that there are several types of markets, it all depends on the country and the scale of trading, their organization, the term of securities and the movement of capital.
What is it for
Let’s figure out what functions the stock market performs and what role it plays in the economy.
The main task of stock markets is the reallocation of funds. Wealthy people and organizations invest in stocks or bonds to help needy firms grow with material investment. In return, they receive profit in the form of dividends and the difference between the exchange rates.
That is, the stock market helps buyers and sellers find each other and interact. Companies find investments, and investors many ways to increase your capital.
In addition, foreign capital is attracted on the stock markets. Domestic startups often need investment, and they find it from foreign investors.
Stock market participants
Participants in operations with securities are:
- exchange participants.
Companies that issue their shares on the stock market are called issuers. They must go through an initial public offering – IPO. By investing in its securities, the issuer receives funds for the development of the company and profit.
Investors can be:
- Individuals, private traders. This category includes large investors and ordinary traders.
- Legal entities. These include companies, organizations, corporations, pension, investment and insurance funds.
- Municipalities. They participate in the auctions on behalf of the state, which wants to take part in the development of many promising companies that affect the country’s economy.
Brokers and brokerage companies act as intermediaries. They help to enter the stock market for a commission. They also have the right to perform various operations with securities on behalf of the employer.
As participants in the exchange mechanism, there are:
- dealers – are responsible for liquidity in the market;
- depositories – are responsible for the accounting of securities and storage of certificates;
- registrars – keep lists of registration of securities by agreement with the issuer.
All participants contribute to the maintenance of the stock market and help in the circulation of securities, each with its own goals and functions.
How to start trading on the stock exchange
To trade and buy on the stock exchange, you will need the help of a broker, because it is unprofitable and costly to do it directly.
If you want to start buying or selling on the exchange without intermediaries, you will need:
- Get a license;
- Make a contribution to the stock exchange of about 3 million rubles;
- Purchase professional software for 100,000 rubles.
If you don’t want to give that much money just to enter the stock exchange trading, hire a broker or brokerage company. For the services of an intermediary helping to complete transactions, you will have to pay a commission on each transaction, but you will avoid the costs listed above.
To start trading, you should adhere to a certain algorithm of actions:
- Choose a trusted broker with a low commission.
- Install specialized software on a computer or laptop, from where operations on the exchange will be carried out.
- Configure it, test all the functions, read the instructions, or ask the broker to help you figure it out.
- Open a demo account, this will allow you to check the capabilities of the trader’s terminal and test your strategy on the trades.
- Open a real account and make an initial deposit. From this moment you become a novice trader, you will have to win and lose, trade for more than one year to become a professional.
- Develop a strategy or several to make a profit on the exchange. Try different approaches, don’t be afraid to experiment and look for your own trading tactics.
- Collect and analyze the information received before starting work on the exchange and during trading. Analysis is the number one assistant in the stock exchange.
Ways to make money
When you have completed the entire algorithm, you should learn about the ways to make money on the stock exchange, there are two of them:
- Investment – allows invest for medium and long periods of time, earning on dividends;
- Speculative – a faster way, which consists in buying and selling securities and making money on the price difference.
Higher returns are expected in a speculative way, but risks are also high. The investment method requires more time and brings less income, but it is more reliable and stable.
If you have chosen investments, then here is the range of possible operations:
- Buying shares, it allows you to receive annual payments in the form of dividends, shares of trusted companies: Apple, Facebook, Google, Samsung, etc.
- Buying bonds is more reliable than the previous one. You are paid the par value of the security and interest.
- Purchase of certificates. They are similar to bank deposits, only you can set any amount and transfer them without loss.
If the second type of earnings is closer to you – speculative, then here the range of opportunities is already:
- Resale of securities. It is risky, but it brings high incomes with a smart strategy. Experienced best.
- Dealing with futures and options that allow you to buy or sell an asset for a specified period of time for a specified value.
These types of earnings differ in profitability, risks, applied strategy and financial instruments. The trader’s goal determines the volume of sales, the timing, the desired profit and the way to earn it.
If it is more important for you to receive a stable income, you do not like to take risks and are not ready to lose money when changing your strategy, then it is better to buy stocks and bonds.
If you are ready to experiment, want to reach high income, are good at analysis, then resell securities.
Legal stock exchanges in Russia
The organizer of trading is the stock exchange, the most popular and legal ones on the Russian market:
- MMMB – Moscow Interbank Currency Exchange;
- RTS – Russian Trading System;
- SPB – St. Petersburg Stock Exchange.
The MMMB and St. Petersburg traded mainly shares, and on the RTS – futures and options.
To successfully trade on all legal exchanges at once, to follow the news of the stock market, use a brokerage account at Tinkoff Investments.
By opening an account there, you can perform various operations from a mobile application, act as an Investor or Trader. It is more profitable than contacting a broker and more convenient.
After opening an account, you will be able to trade on domestic and American exchanges with a minimum commission.
Brokerage services are provided by many companies and the choice is yours, study the commission percentages, services offered, exchange options, terms of transactions.
If you have just started trading on stock exchanges, then here are some recommendations that make the process more understandable and profitable:
- Develop a strategy and stick to it. You must have your own trading tactics, taking into account the risks, your manner, the desired result. At the same time, do not forget that the market is volatile, so the strategy must be flexible and adapt to the current situation.
- Constantly research the stock market, analyze what is happening. The market is changing and you must be prepared for it. Study trends, follow news and events, improve your skills, develop more effective strategies.
- Keep calm and control your emotions. It is better not to make impulsive and emotional purchases. Think over your every step so as not to lose money, but only to increase it.
- To conduct a full-scale analysis of your activities, identify weaknesses, track successful deals and unsuccessful ones, keep a diary. In it, write down the operations performed, the expected and real profit, strategy, and losses. Recordings will allow you to draw conclusions about your work over a certain period of time and identify weaknesses.
- Remember broker percentages. When closing deals, subtract the interest going to the intermediary. If the commission prevents you from reaching a tangible plus, then you should think about changing the broker.
The stock market is a complex financial system that allows a company to receive money for growth, investors to multiply profits, and traders to make good money.
When trading on the stock exchange, you will have to constantly develop, look for new approaches, and take risks. This leads to high earnings and real results, but there is a risk of losing and losing the invested funds, you also need to prepare for this.
Have you tried to make transactions on the stock exchange? Share your experiences and opinions in the comments and don’t forget to rate the article.