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How to buy shares on the stock market? This is one of the first questions that novice investors ask themselves. Buying stocks itself is not complicated, but it is also worth learning how to buy stocks and reduce trading commissions, as well as other practical aspects of investing in stocks.
How to buy stocks on the stock market?
Stocks are among the most popular financial instruments in which investors invest two funds. These are securities that are issued by companies. A person who buys shares becomes a shareholder, who, by virtue of owning shares, acquires specific rights.
A shareholder is entitled to a systematic share of profits in the form of dividends, as well as to attend board meetings and vote at general meetings. He can also obtain a share in the event of liquidation of the company. It is worth knowing that shareholders are not liable for the company’s obligations and do not take any action.
How do shares work?
To find out how to buy shares on the stock market, you first need to know the mechanism of their operation (read also: How to invest in the stock market). The company issues shares ok to raise capital to finance its operations and further development. One way to obtain funds, is to issue or issue shares. Shares can only be issued by joint-stock companies and express ownership of its assets.
If a company issues shares for the first time, this is known as an initial public offering of shares, which is called an Initial Public Offering. In this case, the company becomes publicly listed, and its shares become traded on the stock exchange. When the company’s shares are already traded on the stock market, the company can issue additional shares to raise more capital. Investing in IPO shares is very popular among investors, as it is the first opportunity to buy shares in companies that are growing rapidly.
Participation in company ownership
Not all shareholders who decide to buy shares have identical rights and the same share of ownership. The granting of dividends is regulated by the dividend policy, which is determined and applied by the company. Each shareholder is entitled to a dividend, i.e. a share of the profit. The amount of dividends depends on the number of shares held. If the dividend is USD 50 per share, and the investor has 10 shares, on the right to a dividend of USD 500. Dividends are paid annually, quarterly or semiannually, depending on the company.
When do stock prices rise and when do they fall?
Stock prices depend on the same supply and demand rules as other services or goods. If the services or products that a company provides are successful, the price of a stock usually rises. When it comes to investing in stocks, go it is important to choose those stocks that have adequate growth potential. When buying shares, an investor buys a part of a company and becomes a part-owner, so he must believe in its potential and future growth.
The current share price includes public information about important events that are related to the company, but also about its current situation and current expectations. This means that if, for example, Apple has released information that it expects revenue to increase by 10% in the next quarter, this information should be included in the current stock price. When sales increase by 10% at the end of the quarter, Apple’s stock will not rise, although this is a positive development. However, in this case, as this information was already expected, it was included in the stock price.
Of course, every investor counts on the price of his shares to rise. A stable rate of price increase ensures capital growth, and this means that shares can be sold at a higher price than the one at which they were bought, and the difference in profit means capital gain.
The share price will fall, if the company does not record profits, and the financial report is not satisfactory, or the quarterly figures are worse than originally expected, it can be expected that revenues and profits will fall in the future.
Of course, it is important to remember that there are also factors that do not always depend on the company, which can affect the price of shares. External factors such as inflation, the political situation, interest rates, economic cycles, tax burdens or unforeseen events such as an earthquake or war.
Why invest in stocks?
Investments in equities are considered relatively safe, as well as low-risk financial instruments, compared to other assets. The advantages of equity investments certainly include the often high liquidity of the markets, which allows you to buy or sell shares at any time.
Low fees, as well as the possibility of personal portfolio management, are also advantages that are associated with equity investments. As for the disadvantages, there is a lack of ability to influence the company’s operations, low awareness among retail investors and, in extreme cases, the possibility of the company going bankrupt.
Long-term stock valuation
Yield growth that is long-term is the primary factor that makes equity investments so popular. The key to successful investing is that the profitability of the investment must outpace inflation.
Regular income in the form of dividends
Annual percentage stock valuation is one option through which you can earn money on equity investments. The other option is regular dividend payments. However, not every company pays dividends and not every dividend has the same amount. The sum of dividends is expressed in a fixed amount per share, and this is one of the factors that affect its price.
The amount of dividends usually depends on the company’s profits, but there are also companies that do not generate profits and therefore do not pay dividends. The payment of a systematic dividend is a very desirable factor for investors, who can often decide whether to buy shares.
Diversification of the investment portfolio
For some investors, equity investments may be the main source of income, while for others it may only be a form of diversification of the investment portfolio. Investing in stocks is not a complicated activity and there are many benefits, such as easy access, high liquidity and low fees. Moreover, the investor can benefit from rising stock prices, but also from regular dividend payments. Buying shares is gaining in popularity.
What is a dividend?
To learn how to buy shares in the stock market, you need to know all the most important concepts, related to this activity. A dividend is a share of profit, as the company is supposed to pay to the shareholder. Each holder of shares in a company that pays dividends is entitled to the payment of this dividend. Its timing and amount are decided by the company’s general meeting.
How does a dividend work?
A dividend is a share of the profit of a company’s business that the company pays to those who hold shares. Its amount is determined by the company’s dividend policy. One of the main factors that affect the amount of dividends is the profitability of the company. The amount of dividends can be stable, constantly increasing, or variable, depending on the amount of profit. However, on the other hand, it is important to realize that by paying dividends, the company loses financial resources that could be used for the development of the company.
Dividends are paid on what is known as the payment date. In order for an investor to be entitled to receive a dividend, he or she must purchase shares before the payment date. The last day an investor must own shares is the so-called ex-dividend date. Each company individually decides on the dividend payment date, and any stockholder can easily find information about it.
The dividend is paid, of course, to the investor’s account. The company pays the dividend from its net profit after taxes. Moreover, the dividend received is taxable to the investing party as its own income.
How to buy stocks on the stock market? How to trade stocks?
Investing in stocks is done on stock exchanges from all over the world. Nowadays, the Internet is primarily used for stock trading, which allows you to either buy or sell specific titles from home using a smartphone or computer.
How to buy shares of PGNiG, Apple, Orlen, etc.? Currently, no one can imagine doing this without access to the web and a brokerage account. All you need to do is open an investment account with a broker of your choice and make transactions even will be on the go, thanks to mobile applications (read also: Trading app).
How to buy stocks on the stock market?
The following is information on the steps an investor must follow to start trading stocks.
Opening an account with a broker
The first step is to open an investment account with a broker of your choice. Without a broker, an investor will not have access to the stock market. Opening a brokerage account is as simple as opening a bank account.
Usually, it is enough to fill out an online form, send a scanned ID card, a document that proves ownership of the bank account from which the investor will make the first capital deposit, etc. Each broker individually determines the conditions a potential investor must meet and the documents he must submit. After the transfer to your investment account, you can make the first transactions.
What to choose?
Depending on the broker you choose, it may offer access to different markets and stocks. You can i.e. choose to invest in Polish stocks on the Warsaw Stock Exchange, such as PGE, PKO, KGH, LTS, etc., or in foreign stocks, such as Google, Apple, Coca-cola, BMW, etc. Much depends on one’s capital, expectations and investor preferences. To invest in foreign stocks, you also need to be fluent in English unless, the broker chosen by investors, offers support in his language and the ability to operate the trading platform in that language.
Buying stocks on the stock market using the XTB broker as an example.
Below are step-by-step instructions on how to buy shares on the stock market:
Establish a brokerage account on XTB
To do this, go to the broker’s website. In the upper right corner, click on “open an account”. Next, you need to provide an email and tick the required consents, as well as set a password. Then you need to fill out the personal form. At this stage, you also need to select the preferred currency in which the trader will make transactions, as well as the language of customer service. After completing all the required fields, you still need to verify your identity and place of residence.
Purchase of shares
Once the account is active, the investor can deposit funds into it. This can be done using the “deposit” button. Several methods for depositing money will be displayed, including BLIK. Once the account is funded, one can start investing in stocks (read also: What to invest small amounts in).
To do this, open the Market Watch tab and then two options will be shown:
- Stocks – real stocks
- Stocks CFD – CFD contacts for stocks.
If you expand the STC tab, you will be shown stock exchanges from various countries from which you can buy shares. By selecting a domestic market, a list of companies whose securities can be purchased will appear. By clicking on the name of the selected company, a buy and sell box will appear, as well as a “buy” and “sell” button, and the number of shares the investor wants to buy or sell. This is a way to quickly buy shares on the stock market.
However, it is also possible to choose a limit order rather than an automatic buy. To do this, click on the “+” icon. Then a box will open with a choice of two options:
- Immediate execution – the price is a few pennies higher, so that immediately there is a willing party to sell the shares,
- Pending order – in this case, the investor can set the amount for which he wants to purchase certain shares. He also sets the expiration time of the order.
Stocks in an investment portfolio
Once the shares are bought, the investor will be able to see them in his portfolio in “open positions.” And what do the items listed there mean?
- Volume – this is the number of shares of a specific company that the investor owns,
- Market value – this is the current value of the investor’s shares,
- Opening price – this is the price at which the investor bought the shares,
- Market price – is the current price of one security of a specific company,
- Net profit/% – the profit or loss that the investor made on a specific position in zlotys and as a percentage.
When the stock reaches a price that the investor is satisfied with, he can sell it by clicking the “sell” button.
How to buy shares in the stock market? Some useful tips
Here are some tips to keep in mind when investing in stocks:
- Wanting to buy and sell shares frequently, it is better not to choose bank brokers, as they charge a much higher cost,
- It is not advisable to buy shares of a company that is just in fashion. Always pay attention to such issues as the price/earnings ratio. The desirable values of this ratio are between 5 and 15. If the ratio is, for example, 100 or 200, it means that the valuation of a particular company has already departed from the fundamentals and will soon be verified by the market,
- It is not worth fearing a downturn, as it is a good time to buy stocks cheaply,
- Diversify your portfolio – it is best to place your capital in a variety of stocks, not just one type. This will help reduce investment risk and prevent the loss of all the investor’s capital,
- Cool calculation – this is probably the most difficult skill to master, but the best investors are able to approach their investments without undue emotion. Stress or excessive excitement can effectively interfere with logical thinking and making the right investment decisions. Therefore, you should try to develop such a skill as keeping a cool head when making investments, and they will certainly be more effective, and thus profitable,
- Acceptance of risk – this is an integral part of the activity of investing in stocks. Before going it, it is worth accepting it, so that the investor will bear the possible loss of capital more lightly,
- Investing exactly as much as you can lose – you should use the money you can lose to invest in stocks, and it will not put a strain on your household budget. Under no circumstances should you borrow to have money to invest. Funds allocated for this activity, should be “free”,
- Continuous learning – investing in stocks or other financial instruments is associated with the fact that the investor must constantly expand his knowledge on the subject. He can get it from a variety of sources, such as online or classroom investing courses, as well as online articles, webinars, ebooks and audiobooks. Training courses are available both paid and free, so you can easily choose one that suits your preferences and abilities.
What is a broker?
A stock broker is an intermediary between an investor and the stock market. Without a broker, an investor is unable to buy any shares unless he is a stock market investor and has a place to pay directly to the stock market. A broker is a brokerage firm that you as a trader want to work with. The broker charges clients for transactions.
The broker will allow the investor to open an investment account under his name. The investor sends him money with which he can purchase stocks. The broker also provides access to a trading platform to enter orders and provides data so that the investor can see current prices.
Read also: Stock market simulator
When it comes to investing in stocks on the stock market, the broker should be the investor’s partner, and the broker should be properly matched.
How to create a stock investment strategy?
Knowing how to effectively carry out buying and selling of shares requires some effort, as well as a willingness to learn new things. No one is born as an investor, everything must be learned. Depending on the time horizon chosen, equity investments can be divided into long-term and short-term.
Long-term investments active trading
Long-term investments are based primarily on basic stock analysis. Long-term investors usually monitor and analyze the financial statements of companies or the proportions of certain indicators (read also: Basics of investing in the stock market).
With this, they try to understand the sector in which the company operates, the company’s products and services, as well as the company’s management specifications. Based on this, they choose shares of companies that are currently relatively cheap, but with potential for long-term growth.
Investing in stocks in this way is not about considering weeks, months or years, but long-term periods, and investors are oriented toward making long-term investments.
Short-term investment, on the other hand, is active trading and is referred to as day trading. Short-term investors mainly use technical analysis and follow price charts, and use various types of indicators.
Fundamental analysis may no longer be as important, but it is best to know as much information as possible about a financial instrument. Short-term investors are also more likely to make short-term trades, that is, speculate on dips.
Fees and commissions, or how much does it cost to buy and sell stocks?
Investing in shares of listed companies is not an expensive activity. The basic version of an investment account is often offered and maintained either for free or for the amount of a few tens of USD per year.
You should pay more for additional features, such as access to information services or a better look in the order book. By default, an investor sees only one best buy or sell offer and has instant access to offers. However, the best package should mostly be enough for novice investors. The broker earns commissions, which are charged to investors for each completed buy and sell transaction.
Calculating profits and realizing losses
From the moment the order is placed, the investor allows the market to affect his money. It depends on the decision of all participants in the capital market whether the prices of the shares bought will rise or fall. For this reason, the prices of some stocks rise and others fall, and this is the essence of investing.
The investor can, of course, withdraw funds from the account if it generates a profit. Usually the payment is made by wire transfer to a bank account previously provided by the investor. He submits a transfer order and should have the funds in his account the next day.
Some brokerages give the option of withdrawing money at their own branches. This type of operation may require payment of an additional commission, and if the withdrawal is to be high, it should be reported well in advance.
How to buy shares on the American stock exchange?
Companies such as Apple, Netflix, Amazon, Tesla, Google and many more are listed on the US stock market. Because it features high investment potential, the American market is of interest to investors from all over the world (read also: World stock exchanges). Many people are wondering how to invest in stocks on the US stock market.
Investing in U.S. stocks represents a great opportunity for both small and large investors. However, it is important to keep in mind that, like other markets, the U.S. market is characterized by high volatility, and by investing in U.S. stocks, an investor exposes himself to considerable risk.
Many people choose to buy shares in Google, Apple or Amazon thinking that it is a sure investment. However, every investor should realize that you can never be sure that the shares of selected companies, which have been in an upward trend for a longer period of time, will suddenly start to fall. In order to be able to determine, at least to some extent, how the market will develop, it is advisable to perform a technical and fundamental analysis before buying the chosen instrument.
The former allows you to determine how the market will shape itself based on past quotations. It is worth remembering that history likes to repeat itself. Fundamental analysis, on the other hand, allows you to determine how the stock price will develop based on micro and macroeconomic data, also taking into account financial information that is directly related to the company.
How to buy shares of American companies?
When it comes to investing in U.S. stocks, one option is to buy actual shares. In order to invest in the U.S. market, you must have an investment account with access to foreign markets.
Ways to invest in U.S. stocks
Many people wonder how to buy shares on the US stock market in ways other than buying them for real. The financial market is associated with many opportunities, so that investing in the US stock market is available to investors who have little capital and are focused on short-term gains, but also investors who have a lot of capital and are focused on long-term gains.
How to buy shares on the US stock market? This type of opportunity is provided by ETFs or CFDs, among others. The latter, otherwise known as contracts for differences in exchange rates, are derivative instruments that allow the investor to make a profit even in the event of negligible price movements in the underlying instrument.
ETFs, on the other hand, are collective investment instruments. They are listed on the stock exchange and allow investors to invest in the shares of several companies at one time. Their portfolio may include shares of companies from the same or different industries, which is an interesting form of diversification. In addition, ETFs can invest not only in stocks, but also bonds, as well as other underlying instruments (read also: Stocks or bonds).
How to buy shares of U.S. companies through CFDs?
CFDs are leveraged instruments, so you can invest in them with little capital. In order to open a position in a contract, you don’t need to have the entire deposit, but only a margin. How much margin should be depends on the size of the position, as well as the leverage used. The higher the leverage, the lower the required margin (read also: Margin trading and leverage).
Leverage makes it possible to maximize profits with small price movements in the underlying instrument. However, this is associated with high risk, as it carries the possibility of losing all the capital held. Investors should use leverage only when they can actually afford to lose it.
CFDs are instruments that work especially well for short-term investments. Due to the fast execution of orders and low commissions, you can open and close positions on them even within seconds.
You may also read: Futures and forward contracts
Importantly, when deciding to trade stocks on CFDs, you can make money not only on increases, but also on decreases, which depends on the type of position taken. Investors who predict that the US market will go up must take a long position in the contract. On the other hand, investors who predict that the US market will go down should take a short position.
Access to CFD trading is provided by CFD brokers, as well as some brokerage houses. Having an account with them, a trader can open a position with a few clicks, which is very convenient and saves a lot of time.
How to buy shares of American companies through ETF funds?
As mentioned above, it is also possible to install in the shares of companies with the help of ETF funds. There are ETFs available on the financial market that are based on the most popular companies, such as Apple, Netflix, Tesla, etc., as well as ETFs that are based on new, emerging companies (read also: How to invest in stocks).
Investing in ETFs is a suitable solution both for those investors who want to invest money in well-known companies, and for those who believe in the potential of companies taking their first steps in the market. The market for ETFs is very large, so everyone can easily find something for themselves.
How to buy shares on the German stock market?
In addition to American companies, German companies, such as Adidas or Hugo Boss, Bayer, Allianz, etc., are popular among investors. How to invest in German stocks? As you can see, many well-known brands are German companies. Due to their continued growth potential, many investors want to put their money in them. These are companies that are listed on a foreign stock exchange, so it is more difficult to find them, but it is of course as possible.
As in the case of U.S. stocks, in order to buy German stocks, one must set up a brokerage account with an intermediary that offers access to the German stock market. If an investor has already set up an investment account, entering into a transaction will not be too different from what it is like for companies and stocks on the Warsaw Stock Exchange. To place an order to buy a stock, search for it, either by browsing the available instruments or by typing the company’s name into the magnifying glass, and then click on the desired instrument, opening a new window at the same time.
Then, in order to be able to give the order for execution, you only need to specify a few parameters, in particular, its type and size. Then all you have to do is wait for the broker to execute it, resulting in the appearance of shares in the account.
Where to buy shares of German companies?
Having already known how to buy German stocks, it is necessary to consider where to do it. Choosing the right broker in this case is half the battle. Especially since you need to be guided by the amount of commissions and fees, but also by the available markets. Below is a list of brokers that provide the opportunity to invest in the German market.
Setting up an account with this broker is possible entirely online (read also: Online stock market). This means that those investing do not even have to move from their armchair. XTB is a Polish broker, which means it enjoys a lot of trust among Polish investors. What’s more, it provides a wide range of offers, including giving access to foreign markets.
It allows you to invest in shares of German companies such as Adidas, Allianz, Bayer, Hugo Boss, etc., but also American, Swedish, British or French stocks. XTB is a broker that has many advantages, including an intuitive trading system, low commissions or the ability to place orders out of session (read also: Stock market apps for investing).
Investors can also choose to open an account with the broker DEGIRO. This broker has received numerous awards. The broker provides low transaction fees, the ability to create an account for free and in 10 minutes, access to an innovative platform, and the ability to make investments in global markets.
This is another broker that is very popular among investors. The offer is aimed not only at small investors, but also small agencies, as well as large investment companies. It is mainly aimed at providing convenient investment conditions on as many financial instruments as possible. This broker offers free investment account maintenance, 24/7 support, relatively low commissions, as well as a huge selection of stocks and other financial instruments.
Which German broker offers CFDs on stocks?
CFDs have many advantages, which makes them very popular among investors. First of all, you can easily invest on them short-term. In addition, thanks to the possibility of using leverage, investors have the chance to maximize their profits. Another important advantage of CFDs is that brokerage houses, as well as many Forex brokers, have them in their offer. You can find instruments with them that are based on stock quotes from the Warsaw Stock Exchange, as well as foreign markets.
These instruments in their offerings have, for example, the broker XTB. How to buy shares on the German stock market using CFDs? This can also be done by using the services of the eToro broker. It is a frequently chosen CFD and Forex broker by traders from all over Europe. It has CFDs on offer, which are based on shares of many German companies. Importantly, it gives you the ability to trade them from an intuitive trading platform.
Another broker that also boasts a wide range of CFDs on stocks that are listed on the German stock exchange is Plus500. Investors often choose to use the services of this broker, as it is characterized by the absence of additional fees for carrying out deposits or live quotations. With the help of CFDs, you can trade with him, among others, on shares of Bayer, Deutsche Bank, Allianz, etc.
Read also: How to make money in stocks
How to buy shares on the stock market? The process is not complicated, but beforehand the investor should acquire the right knowledge that will help him invest effectively and limit his risk. Also, buying shares in foreign markets should not be problematic. It is enough to set up an investment account with a broker that gives access to world exchanges.