BEFORE INVESTMENT IN STOCK MARKET
The stock market is a market of securities: bonds, investment shares.
To conclude transactions for the purchase and sale of such securities is easiest at a specially organized trading platform – the stock exchange. It makes it possible to reliably and quickly buy securities and sell them at a fair, that is, market price.
On the exchange there are professional participants – intermediaries between buyers and sellers. These are banks, brokers, investment companies. It is intermediaries that provide access for private investors to the exchange market. All relations between participants and the working mechanisms of the exchange itself are regulated by the Federal Law “On the Securities Market”.
You can buy and sell certain types of securities outside the stock exchange, this way of trading is also called over-the-counter. But, firstly, it is not always possible to do without intermediaries: outside the stock exchange, securities are usually not sold literally from hand to hand – those who issued, to those who want to invest. Organizers of transactions in the over-the-counter market are the same brokers, banks and so on.
Secondly, over-the-counter trade is associated with greater risks: in this case, operations are not controlled by anyone. And this means that you are not protected from fraud and risk your money. Therefore, if you want to invest money in securities, you should do it through the stock exchange.
Many imagine the exchange as a noisy place where people with three handsets in their hands shout their bets, but these times have long since passed. Now almost all the activity of the exchange is conducted electronically.
Why And How Do They Issue Securities?
The issuer is the one who issues securities. The issuer can be a company, the state or its separate region and even a city.
Securities are issued to attract money. Before issuing, the issuer assesses how much money it needs and in what form. The company can simply “borrow” money from future buyers of securities, promising them to pay interest in the future – then it issues bonds, in fact, debt receipts. And you can get money by offering buyers to become co-owners of the company – to divide its capital into micro-shares and sell them. It will be shares.
Then the company determines the parameters of securities: their number, denomination, that is, the value of one security, its validity. After that, the state registration of the issue takes place: a special record is made of this paper in a special register.
For example, the company wants to attract additional investments and issues shares. Having bought them, you become the owner of a share in the company and get the right to a part of its profit, which is distributed among all shareholders (so-called dividends), and the right to vote at the shareholders’ meeting. Or the company or the state (region, city) issues bonds to borrow a little money on the market and after a while to give them back with interest for use.
Registered securities are placed on the stock exchange, where they can be purchased by investors.
How To Become An Investor?
An investor is someone who invests his money to make a profit.
At the exchange, the investor buys and sells securities. But they can not be bought directly from the issuer or sold to another investor. To conclude transactions, the investor needs to open a brokerage account. This is a special account through which you can buy and sell securities, as well as see the entire history of operations. Work with this account will be your official representative on the stock exchange – a broker.
Who Is A Broker And How To Work With Him?
A broker is an intermediary between the investor and the issuer, a professional market participant who makes transactions with securities for the investor.
You conclude a service agreement with the broker and open a brokerage account. The broker carries out operations on your behalf. From the brokerage account are debited the money for the purchase and commission of the broker – the fee for the fact that he helped you to perform the operation on the stock exchange.
You can communicate with the broker through the Internet if you install a special program – a trading terminal. And you can give instructions by phone, for this you will be given a special card with the codes. The broker names the cell number in the card, you erase the protective layer and call a combination of numbers printed in this cell.