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For investors who are not satisfied with the stock market in their country, all the world stock exchanges stand open. If an investor has been trying his hand at investing money on the stock exchange in his country for some time and has been successful, there is nothing to prevent him from trying to invest his capital in world stock exchanges.
World stock exchanges – what exactly is a stock exchange?
In the past, a stock exchange was a place where buyers as well as sellers met to conduct business related to the sale as well as purchase of goods. Currently, it is usually associated with a place where deals are made to buy as well as sell financial instruments, such as stocks, bonds, etc.
At the very beginning, the stock market was in a building where investors met to trade together in a direct, face-to-face manner. However, due to technological breakthroughs, almost all stock exchanges in the world have begun electronic trading, giving investors greater access to international markets.
The largest stock exchanges in the world
The following is a list of the world’s best-known and largest stock exchanges.
New York Stock Exchange
Stock exchanges around the world vary, but the most famous and largest stock exchange, in terms of capitalization, is the New York Stock Exchange. It is associated with the famous 9:30 a.m. bell that is broadcast on television. The exchange “The Big Board” and was founded in 1792. In that year, 24 brokers on Wall Street signed an agreement called the Buttonweed Agreement. The name of the agreement is related to the fact that it was signed under a plane tree. At that time, the brokers set commissions on transactions, and also established a priority of buying securities for members of the exchange.
The first securities to be admitted to trading were government securities, such as war bonds, which were used to finance military operations.
In 1817, brokers made some reforms to formalize exchanges in the US. During this period, the brokerage organization rented space for trading on the trading floor, which had previously been organized in a cafe on Wall Street.
There were many periods of panic and crashes in the late 19th and early 20th centuries. The most famous one, after which regulations were introduced to prevent such events in the future, was October 24, 1929, the so-called Black Thursday.
On that day, banks were eager to extend loans to buy stocks, and many people were tempted and took advantage. When the bubble burst, many people lost their fortunes, and the companies whose shares were bought – collapsed, because they were not really worth anything.
After Black Thursday, a rule was introduced that companies that are listed on the stock exchange must file systematic financial reports. Currently, such companies publish quarterly reports. These reports also include forecasts for future quarters, but these forecasts are best approached with caution, as they are usually more optimistic than reality.
On Black Thursday, the Dow Jones Industrial Average index lost roughly 11%, followed by losses of 13 and about 12% on Black Monday and Tuesday. The Black Thursday crash was probably also the beginning of the great global economic crisis. Many people lost their fortunes in the stock market, businesses began to fail, and unemployment in the United States reached about 30%.
The next famous crash was the so-called Black Monday, which took place on October 19, 1987. That’s when the index fell by more than 22%, and it was the largest percentage drop in the index’s history. Its cause was, among other things, the drop in oil prices by about 50%.
On the other hand, in 2001 the US stock market suffered another crash and then there was a drop of more than 680 points in the index. And in September 2008, there was a larger point drop of 777 points.
NASDAQ
As far as world exchanges are concerned, the second largest is the US exchange, the National Association of Securites Dealers Automated Qutations, which was founded in 1971. Its headquarters are located in the famous Times Square in New York.
This exchange operates exclusively through computers and telephones and became the world’s first electronic stock exchange. This global exchange is associated primarily with technology companies. Until 2006, it operated as a regulated, over-the-counter market, which was created by market makers. They created an alternative trading system for securities. After buying the Philadelphia and Boston stock exchanges in the early years, by 2021 NASDAQ had reached a market capitalization of more than $19 trillion.
In fact, the exchange currently lists nearly 4,000 companies, all of which are considered to have ties to technology.
The largest companies listed on this exchange are Apple, Microsoft or Google. In turn, the main indexes are the NASDAQ 100 and the NASDAQ Composite.
London Stock Exchange
This is the London Stock Exchange, which began in 1698 as a newspaper that published market prices. However, in 1801, it allows buying as well as selling of shares, making it one of the oldest stock exchanges in the world. In fact, it was the world’s largest stock exchange until the end of World War I.
Headquartered in Paternoster Square in London, this stock exchange has more than 3,000 companies from more than 70 different countries, making it the largest stock exchange in Europe and the 6th largest in the world, as well as the stock exchange with the most international companies listed.
The London Stock Exchange, which is currently part of the London Stock Exchange group after its merger with Borsa Italiana, hosts the FTSE 100 index, which includes the top 100 companies by value.
The companies that make up this index account for 80 percent of the capitalization of the entire stock exchange. The largest of these are, for example, Vodafone, the international cell phone operator, and HSBC, the Holding Company for the banking industry.
Euronext Amsterdam
This is the Amsterdam Stock Exchange, which was founded in 1602 and was primarily a commodities exchange rather than a securities exchange. Despite this, it was on this exchange that the first ever corporation to issue shares in the Dutch East India Trading Company appeared. For this reason, this world exchange is considered the oldest still functioning market in the world.
In 1997, the Amsterdam Stock Exchange merged with the EOE, or European Options Exchange. This sparked the creation of the AEX index, which is very popular. In turn, in September 2000, the exchange also merged with the Brussels and Paris stock exchanges.
The resulting entities are currently known as Euronext.
It is currently one of e Europe’s largest stock exchanges, with more than 1,300 companies listed, whose market capitalization in 2018 was nearly 4 trillion euros. In addition to the AEX 25 index, Euronext also has the CAC 40 index and the BEL 20 index.
Xetra/Börse in Frankfurt
This is one of the smaller stock exchanges, which was established in the early 1990s. It is one of the largest stock exchanges in Germany and is part of the Deutsche Börse AG group. It was founded to exchange currencies.
In 2018, the exchange’s capitalization reached more than $2 trillion, which makes it one of the top ten largest exchanges in the world. It is also the most important and largest stock exchange in Europe. Most of the companies that are listed on this exchange are based in Germany, as well as other countries that are denominated in euros. The main index on the exchange is the DAX, which brings together 40 of the largest companies, such as Adidas, Volkswagen and Alianz.
WSE
The first stock exchange in Poland was established in 1817, and in those days was called the Merchant Exchange. Before World War II, 130 securities were listed on the exchange, including bonds, stocks and mortgage bonds (read also: How to make money in stocks). However, the war period and the communist era deprived Poland of the possibility of having its own stock exchange.
The Warsaw Stock Exchange was not established until 1991. Although it is not one of the largest stock exchanges in the world, it is currently the largest stock exchange in Eastern Europe and more than 3,000 financial instruments are listed there.
An interesting fact about the WSE is that it was somehow established as a joint stock company in 1991 by the Treasury, which still has a 35% stake. Currently, the Warsaw Stock Exchange’s biggest competitor, as well as several others, is the OTC market, primarily Forex, and more specifically the market for CFD contacts, based on currency pairs (read also: Best cfd broker and CFD trading).
Tokyo Stock Exchange
The tom exchange was established in 1878. It underwent many changes after World War II and is currently known as the Japan Exchange Group. It was formed by the merger of the Tokyo Stock Exchange with the Osaka Stock Exchange in 2013.
The Tokyo Stock Exchange consists of more than 3,500 companies and is the largest stock exchange in Japan and East Asia, and the 3rd largest in the world. The main index listed on this exchange is the Nikkei 225, which includes 225 companies with the largest capitalization. The index reached its peak in 1989, and includes corporations such as Casio, Canon, Sony, Mazda, Mitsubishi, among others.
Hong Kong Stock Exchange
As for the world’s largest stock exchanges, one of them is the Hong Kong Stock Exchange. The first stock exchange was called the Hong Kong Stockbrokers Association and was founded in 1891.
Companies that are listed on the Hong Kong Stock Exchange are primarily based in Hong Kong and are listed mainly in Hong Kong dollars. It is the largest stock exchange in Asia.
The Hang Seng Index is an index that weighs the market value of stocks, which is compiled for the Hong Kong Stock Exchange. Its check specifically includes banks and insurance companies from mainland China. Currently, the first place in the index is held by Chinese internet company Tancent Holdings.
The most important stock market indexes in the world
Stock market indexes are usually associated by investors with the Polish capital market, with the most popular being the WIG or WIG20. However, the global market has many more indexes to offer (read also: Investing in the stock market and Safe investment in the stock market).
What are the most important stock indexes in the world?
Stock exchanges around the world contain several thousand shares of various companies. However, it is not possible for investors to keep track of each of them and stay up to date with the current price. In this case, the world’s most important stock market indexes, which indicate the condition of either the entire market or a selected segment, come to the rescue. Stock market indexes themselves are not a financial instrument that you can purchase for your investment portfolio. They are just a kind of synthetic indicator.
DJIA
This is the most recognizable world index – the Dow Jones Industrial Average, or Dow Jones Industrial Average. This index is an arithmetic average, which is calculated on the basis of the prices of the 30 most important companies that are listed on the NYSE, the US stock exchange. Its composition is regularly updated. Currently, it includes such brands as Apple, Microsoft and Boeing. DIJA is the oldest index in the world.
S&P500
A new index, the Standard and Poors 500, was created in 1943 and includes the 500 largest companies in the US. These are the companies with the largest capitalization. These companies not only reliably pay dividends to shareholders, but also increase these payments each year. The most popular sectors that make up the S&P500 index are healthcare, luxury goods and information technology.
DAX, Euro Stoxx, CAC40
One of the most important European indices is the German DAX index. It includes the 30 largest companies that are listed on the Frankfurt Stock Exchange. It is a performance index that takes into account stock price growth, but also capital growth through dividend payments. This German index has been listed continuously since 1988. According to statistics, it is often chosen by Polish investors.
An alternative to the DAX index is the Euro Stoxx 50 index, which includes the 50 largest European companies. It also includes such brands as BMW, Siemens, Allianz and Bayer. France’s CAC40 index, which brings together 40 companies from the Paris stock exchange, is also worth a look.
Polish indexes
The most popular indexes on the Polish stock market are WIG20 and mWIG40 and sWIG80. WIG20 groups the 20 largest and most liquid companies on the WSE’s Main Market. It should be noted that this is a price-type index. When calculating it, only the prices of transactions in it are taken into account.
Stock markets in the world – how to start investing in the US stock market?
When it comes to stock markets in the world, the US market is home to the largest capital from around the world. This is very important, because the presence of large capital means that the best stock market analysts work here, as well as financial journalists, and thus all investors have access to reliable sources of information.
What’s more, wherever there is a large clientele, a whole host of services are immediately created, as well as tools that help investors do research, manage investment risks, etc.
The U.S. stock market is also the possibility of using advanced financial instruments, as well as very common here is to play short, that is, to play for stock declines, or to trade options and other derivatives, thus opening up a number of new opportunities for investors.
Access to the U.S. stock market also means the possibility of using the services of the best brokers, who offer the most professional investment platforms, which not only allow you to easily make transactions in U.S. stocks, but also conduct technical and fundamental analysis.
Which broker to trade on the US stock market?
To buy U.S. stocks, in particular, you need to set up an investment account with a broker. Above all, you should look for a broker that does not charge fees for inactivity in the account or for holding stocks, and, moreover, provides low commissions on transactions.
It is also important that the broker’s business is registered in a country with a recognized jurisdiction. In this way, the investor can be sure that proper supervision is exercised over the broker’s activities. Any country that is in the European Union, the entire United States and the United Kingdom will ensure proper control over investors’ money.
In addition to access to the stock exchange in the US, it is also important that the broker provides access to the option exchange. Even if an investor doesn’t trade options now, over time, sooner or later every investor will become interested.
It is also important that the intermediary provide good analytical tools in the form of company financial ratios, revenue and profit forecasts, as well as analysts’ recommendations, since it is on these types of aspects that the selection of the right company for investment is based.
Choosing which stocks to invest in
Having access to the U.S. stock market, it is worth considering in which stocks to put capital. An expert would certainly advise that one that is good, cheap and safe. However, what does this mean?
When evaluating a company in terms of whether it is good, one should assess its profitability. Stocks on the stock market go up due to the fact that subsequent investors are willing to buy back shares at a higher price than previous investors. As a result, the transactional price of the stock rises – the stock price on the public exchange.
However, why should subsequent investors pay more for shares than previous investors did a year or two earlier? This will only happen if the new investors in the future receive more from the company than the previous one. The only compensation a company can offer shareholders is the profits, revenues and cash that is generated by operations.
If today an investor pays $50 per share for a company that generates $10 in net profit in a year, it is likely that when the company generates $30 in a year after a few years, the next investors will be willing to pay $100 for the shares. However, if the company generates the same amount of profit for the next few years as before, investors would not choose to pay more for it.
Therefore, it is important to invest in stocks that have a high rate of growth in profits, revenues, as well as cash. It is also important to take a historical view, as well as experts’ forecasts for the next few years.
How are companies valued on the US stock market?
World exchanges are primarily the stock market in the United States, where the most popular financial instrument is shares. When it comes to valuing a company, the study consists of relating the price of its shares to what the shares give the investor in return. Obviously, he receives a portion of the revenue that belongs to the company, a portion of the profit, a portion of its book value or a portion of the cash that is generated by operations.
The study of ratios is aimed at answering the question – how many dollars now to pay for the stock in order to be entitled in the future to receive $1 of revenue, profit or book value from the chosen company that one decides to buy.
All of these ratios are compared historically to see if the current level means that the stock is expensive or cheap, but also refer to companies that operate in the same industry. This allows you to determine whether, for example, Coca-cola shares are cheaper than Pepsi shares.
Fundamental analysis of U.S. stocks
The third aspect of selecting stocks for a portfolio is assessing their safety. This involves a study of financial stability, called fundamental analysis.
At the type stage, one usually compares the debt of the selected company to its assets. In this case, an investor should examine how many liabilities a company has relative to how much receivables flow into its coffers. A favorable ratio of assets to liabilities is a guarantee that the selected company will not lose liquidity.
The next aspect is to examine the growth of debt, and assess whether it is at an acceptable level, as well as whether the upward trend of debt is increasing.
An investor needs to check not only the amount of debt, but also the cost of servicing it, which can then be related to either the profit or the cash that the company generates each year. This way he will know whether the company can afford to service its debt.
Worls stock exchanges – how to start investing abroad?
Stock markets around the world offer investors many new opportunities. The cost of investing in foreign markets is not as high as you might think. Depending on the broker an investor decides to use, commissions for buying stocks in the US usually range from $1 to $5 per transaction. More exotic markets, such as the Hong Kong or Japanese stock exchanges, are a bit more expensive, ranging from $5 to $15 per transaction. Setting up and maintaining an account in most cases is free.
You may also read: Futures and forward contracts
Thanks to the fact that an investor sets up an account with a foreign broker, stock exchanges around the world will be open to him. Having access to foreign markets, the investor also has the opportunity to make transactions on a huge number of financial instruments, which in Poland few people have had to deal with. In particular, this includes several thousand ETFs and ETNs, which allow investment in domestic sectors, entire economies, or commodities and raw materials (read more: How to invest in silver and Gold investments or Investing in gold).
Another range of powerful financial instruments are options, which are issued on thousands of different assets. Until now, a major obstacle for many investors has been the language barrier and poor knowledge of English, especially investment terminology. However, currently Western brokers have introduced customer service, as well as investment platforms in Polish.
Stock exchanges in the world – how to open a brokerage account abroad?
The first step is to prepare all the required documents. Typically, you will need a scan of your passport and a scan of a second identity document or only one such document, as well as a document that confirms the investor’s residential address. This type of confirmation can be a current gas, electricity or garbage bill. The idea is that the service in question should be associated with a specific address, and that the residential address and the name of the person who sets up the account should be on it.
The second step is to go to the broker’s website and fill out the form with the required data. Foreign brokers, before allowing trading on world exchanges, often require very detailed information, regarding earnings and assets, as well as any debts held, real estate, etc.
This type is the result of statutory restrictions in the United States, which impose requirements on brokers to check every person to whom they open an investment account. Such a questionnaire somewhat resembles a bank’s credit check procedure, but is much less restrictive.
The next information that any intermediary will ask about is experience, as well as knowledge of trading certain financial instruments. The more knowledge an investor has, as well as longer experience, the greater the chance that the intermediary will not ask follow-up questions that verify this knowledge. It is worth remembering that this is not invented by brokers themselves, and it is the duty of brokers to verify that those who open a trading account know what they are doing.
Investing in world exchanges is possible after opening an investment account in advance. When opening a brokerage account in the United States, you also need to specify the type of account – either margin or cash. A cash account consists in the fact that if an investor deposits 100 thousand zlotys into the account, to exactly this amount he has at his disposal.
In the case of a margin account, on the other hand, the broker provides an additional loan in the amount of the deposit (read also: How to invest small amounts of money). In this case, depositing 100 thousand zlotys into the investment account, the broker would grant the investor the same amount to use, that is, he would have 200 thousand zlotys at his disposal. These funds are treated as a loan with an interest rate of 2.66 to 6% depending on the broker chosen.
The last thing to choose is the account’s settlement currency. Usually, it is best to opt for the USD, as this is probably the currency in which most transactions will be carried out. As for the US stock market, it lists the largest number of financial instruments from all over the world.
It follows that if an investor wants to invest in the shares of Brazilian or Chinese companies, it is not necessary to have access to, for example, the Shanghai stock exchange, since a sizable portion of local stocks are listed as ADRs on US exchanges and settled in dollars.
Comparison of brokers – where to open an account?
Polish investors have the opportunity to open an investment account with Polish banks, which offer access to foreign exchanges. Such access is offered by ING Bank Slaski, Bank Ochrony Środowiska, Pekao SA, among others. However, it is worth knowing and that on such accounts commissions are many times higher than in the case of foreign brokers, as they range from $9 to $70 per transaction. So where is it worth opening an investment account?
Degiro
In terms of transaction costs, this is the cheapest broker. It’s free to set up and maintain an account, with commissions of PLN 1 for Polish stocks and between €2 and €4 for European stocks, and €0.50 for American stocks. It takes a dozen minutes to set up an account and the broker gives access to such markets as Singapore, Japan, Canada, Hong Kong, among others. It is a suitable choice for beginners or those who need access only to stocks and ETFs, without derivatives (read also: Stock market investments for beginners and How to invest in the stock market).
LYNX Broker
This is a good choice for intermediate investors who need a good investment platform with a lot of data that facilitates the analysis of financial instruments, as well as access to a very wide range of instruments. Maintaining an account with this broker is free, but commissions on transactions are $5 on the US exchange. This broker offers its clients access to more than 100 exchanges from different countries around the world.
Read also: How to invest in Plus500
Interactive Brokers
This broker offers one of the best investment platforms in the world. It also offers the widest range of more than 100 different exchanges, as well as very low commissions. The broker offers access to all financial instruments, as well as the OTC market. It will certainly be the right broker for advanced investors.
Read also: Trading app – which one to choose?
Similarity to the WSE
Stock exchanges around the world are similar in form to the Warsaw Stock Exchange. In particular, the pattern of analysis that is done before buying shares is very similar. However, there is a higher risk in global markets, which is related to currencies. When the zloty strengthens, the result of the investment decreases, and vice versa. However, this is no reason to abandon this type of investment.
Many investors praise world stock exchanges
Investing in world stock markets requires having as much knowledge as making investments in the stock market in your country. Therefore, early on it is worthwhile to brush up on this area of knowledge and learn all the concepts, so that you can make transactions without problems.
World stock exchanges – what is worth remembering?
Before an investor decides to take up the occupation of investing in foreign markets, he should learn some basic principles that will make this task easier and with which he will be able to minimize the investment risk.
Invest as much as you can lose
It is worth remembering to allocate for investment exactly as much as you can lose, and this loss will not damage the investor’s household budget. Money for investment in world stock markets should be “free. Also, one should not borrow funds from family, friends or worse, in loan companies. When a person does this, it is no longer investing, but gambling.
Diversify your investment portfolio
Contrary to appearances, this is not a complicated concept. Diversification is when an investor buys a variety of financial instruments for his or her portfolio, rather than placing funds in only one type of asset. It is best to invest in several different ones, even having a small amount of money for initial capital. This way, when the price of, for example, a stock starts to fall drastically, the investor will not lose all his capital, as he will have money placed in other financial instruments as well.
Invest in those instruments about which you have knowledge
Do not make trades on those instruments that you are not familiar with. It is best to invest in those about which you have at least basic knowledge (read more: Basics of the investing in the stock market). Only over time, as you gain knowledge and experience, can you start investing in other financial instruments.
Learning
Investing in the world stock markets, is associated with the need for continuous learning. It is worth keeping this in mind, even before you decide to start investing. Even before that, it is necessary to prepare properly, using various sources, such as online or on-site training, webinars, ebooks and online articles (read also: Online stock market). An investor should know all the trends and constantly expand his knowledge related to investing.
Acceptance of investment risk
Risk is inherent in investing. It is best to accept it right away and expect that funds may be lost. However, if an investor is unable to accept this, it is better if he or she opts for less risky financial instruments or abandons investing altogether.
A cool approach to investing
This is a hard skill to develop, but it increases the chances of better investment results. Experienced investors and professionals are well aware of the importance of keeping a cool head. Acting under stress or excitement will unfortunately not produce good results. Cool calculation is essential for successful investing.
Choosing an investment strategy
Investing in foreign stock markets must be started with a plan, i.e. an investment strategy. Playing without a plan makes little sense. An investor must have certain rules and guidelines to follow.
Practice on a demo account
Before you start investing with real money, you should practice beforehand on a free demo account, which most brokers currently provide (read also: Stock market simulator for free). This allows you to learn how the stock market works and test your investment strategy.
Stock exchanges around the world offer investors many opportunities. However, it is important to prepare well theoretically and practically before investing in them, as well as to choose the right broker.
