Have you heard about stock market trading? We bet you did.
Many entrepreneurs would like to explore it. Although this type of investment has a lot of advantages, only those who choose the right strategy can make money on the sale and purchase of securities.
The basics of stock market trading: playing by stock exchange rules
The stock market is the sector of the financial market where transactions with securities are conducted. It plays an important role in the life of individual enterprises and the state as a whole.
Let’s suppose a company wants to develop itself, but it does not have sufficient money. The management decides to issue securities. Legal entities or individuals who bought them receive the right to a part of the company's profit, and the firm itself receives money. As a result, each side wins.
What is trading in the stock market? There are several types of securities:
- A share confirms that its holder is entitled to a part of the capital of the joint-stock company. The shareholder receives income in the form of dividends. If the company is liquidated, the owner of the shares can gain a part of the property. A big holder is generally entitled to take part in the management decisions of the enterprise.
- A bond is a debt security that gives the investor a profit in the form of interest. It is close to lending, but on more favorable terms.
- A bill is similar to a promissory note. The debtor issuing the security promises to pay the creditor the due amount by the due date. Bills can be bought and sold, and you can also pay with them. This type of securities is less common.
There are several groups of participants in the stock markets. Each of them has his own role:
1. The issuers – they are somewhat like sellers. They imply commercial companies, banks, funds, executive authorities. Their task is to receive capital from the sale of shares or bonds in order to conduct activities.
2. The buyers of stocks, bonds and other assets are called investors. They can be individuals and legal entities - private traders, commercial enterprises, government agencies. Investors acquire securities for profit. Like any investment, this type of financial activity carries a risk.
3. The organizations – they support the functioning of the market, being responsible for the operation of all processes. They provide transactions, keep records, collect information on purchases and sales of securities, determine the obligations of other market entities, etc.
4. The intermediaries – without them, the stock market would die. To conduct trading, it is necessary to have a license (issued only after special training), and to pay a special fee. This explains why private individuals and small-scale enterprises bid on the stock exchange through intermediaries. These are broker and dealer companies, professional organizations licensed for this type of activity.
Making money on the stock market is absolutely real. But do not think that it's an easy way to increase your capital. The things you need for successful trading are the ability to analyze the financial market and the possession of deep theoretical and practical knowledge.
