What are stocks? What is the course? How does the stock exchange work and can anyone start playing? If you are wondering about the mechanisms of investing in securities, learn the basic concepts given by Broker.cex , that will largely bring you closer to the world of big money and financial transactions!
What is the stock exchange?
The stock exchange is a virtual market where products and services are exchanged between the buyer and seller. They are mainly securities such as stocks and bonds, but also investment certificates and derivatives, such as futures or SWAPs, are traded. It is also a kind of information agency that provides data on both the economic situation on the capital market and its segments.
Fortunately, today’s technological development means that we can trade financial products anywhere in the world, provided that we have Internet access, a brokerage account, and, above all, a certain amount of money.
Where does the action come from?
A share is nothing but the security that confirms a share in the share capital of a joint-stock company. For example, if 100,000 shares and the shareholder owns 10 thousand. 1/10 of them are the owner of the enterprise.
How is the share price calculated? It depends on the purchase and sale offers. So, the more willing buyers, the more its demand grows, which translates into a higher price. Likewise, when demand falls, sellers must sell the stock at a lower price. Moreover, the share price depends on many factors: starting from the political situation, economic signals, economic factors, through the movements of leading investors and ending with the situation of companies on the market.
The Stock Exchange, that is …
In that case, the stock exchange is just a virtual space? There is indeed the Warsaw Stock Exchange. However, as aspiring investors, we can only visit it and see the famous bell or the statue of a bull. The Warsaw Stock Exchange is the largest and most famous market on which shares of the most influential companies are listed. However, unlike other types of exchanges, it does not materially transact products and services. Trade is based on intangible trading, i.e. in the form of electronic entries in the system of the National Depository for Securities.
In addition to the WSE, we can make transactions on NewConnect and Catalyst, which are a kind of “seed” to the main market. These are young and relatively small technology companies, on the border of IT. They are traded on, incl. bonds or debt securities issued by companies or local governments. Their goal, like shares, is to obtain funds for further development of investments.
Why isn’t investing for everyone?
As a novice investor, trading stocks or other securities can be quite risky. Therefore, before we go into practice, it is worth spending some time learning, incl. about business cycles, bullish, bearish, or the rules of buying and selling shares. The optimal training before the real game is the virtual exchange. On the web, we will find websites where we will be able to invest “virtual money” in selected actions. We can track the change in the value of the investment portfolio, but also compare our results with other participants in the game. It is certainly a valuable experience that will bring you closer to the risks that exist in the “real” market.
What is this risk? We buy securities with our savings, additionally, we predict share prices, which we later sell, earning much more. What if stock prices go down? Well, we will not find a buyer for them, and the invested cash will be lost …
How is the transaction going?
If we want to buy shares on the stock exchange, we must open an Investment Account in a brokerage house licensed by the Polish Financial Supervision Authority. What does it look like?
We agree with the maintenance of an investment account at the customer service point. We can also submit an online application, which will be delivered by a courier,
After passing the formal issue, we pay the amount that we want to invest in the account,
We choose an investment product, e.g. stocks. They are purchased by placing an order online, which goes to the Brokerage House and then to the WSE,
All orders related to shares of a given company are included in one sheet. So there are buy bids on one side and sell bids on the other. All orders can be viewed in programs that convey the status of quotations.
Order finalization – how does it happen?
There is an order-driven market on the WSE. All offers are placed in one “bag” of orders and when entities willing to buy and sell them are found, a transaction takes place. Let’s just remember that it is investors who can place an order with a brokerage house and decide at what rate the transaction will be made. Only later do brokers direct their offer to trade, additionally acting as market makers. It is the type of active investor who is willing to both buy and sell stocks or bonds.
However, not all orders on the stock exchange list come from investors! Under an agreement with the WSE or issuers, brokerage houses are required to place various buy and sell orders. As a result, transactions are concluded more often and they find potentially interested parties faster. So answering the question of how the stock market works – it is based on a multi-stage, securing the investor and his transactions against possible fraud and system errors.
ABC for a beginner investor – in a nutshell
The “market guys” condition their movements with a thorough technical analysis. Therefore, as debutants, we should remember a few important issues:
Precise market analysis – do not buy falling stocks of companies when others have an upward trend,
Let’s use “stop-loss” orders – when selling stocks, set the exact price so as not to lose too much,
Let us only invest part of our savings – do not risk losing all our possessions. At the very beginning, let’s play the sum without which we can exist,
Let’s focus on virtual training – before we play with real money, let’s train on-line investing for fictitious amounts,
Let’s invest shares in stable and large companies – when you start your adventure with the stock exchange, it is worth choosing “certainty”, thanks to which we will reduce the risk of failure.