Shares are among the most popular financial instruments in which investors invest their funds. If you are a beginner investor looking to learn how to buy stocks, this article is for you.
The world markets have been going through a very good period in the last 9 years. For example, nine years ago, the well-known US S&P 500 index could be bought for around $ 1,000 and now has a value of around $ 2,700. Trading stocks is not particularly complicated but it should be noted that it requires a lot of time.
To help you better understand how to buy stocks and the stock market, we have prepared this guide for you. After reading it, you will have better knowledge that will allow you to make your first investments in stocks.
I am already glad that I will earn money and be able to spend it ...
If you are already saying the above words, it is important to immediately remind you not to expect any "guaranteed tips to make you a millionaire."
The first lesson should make you aware that stock trading involves a certain amount of risk that prevents you from making a specific return on an investment.
This guide is based on our many years of experience both in terms of our own investments and regular contacts with investors of various experience and knowledge. The goal is to create universal support for all new and advanced investors. To learn how to buy stocks without too much risk.
In this article, we'll cover:
What are stocks?
How do actions work?
Why is it worth investing in stocks?
What is a dividend?
How to trade stocks?
What is the stock exchange?
What is a broker?
How to buy stocks?
How to create an equity investment strategy?
What stocks to trade on?
Where to find inspiration for investing?
What are stocks?
co je jecie - LYNX BrokerAkcje are securities issued by companies. The buyer of shares becomes a shareholder who acquires certain rights by virtue of holding the shares.
A shareholder has the right to a regular share in the profits in the form of dividends, he is entitled to participate in the meetings of the management board and vote in the general meeting, and may also obtain participation in the event of liquidation of the company. Shareholders do not take any action and are not responsible for the company's obligations.
How do actions work?
The company issues shares in order to raise capital to finance its operations and further development. One way to raise funds is by issuing (or issuing) shares. Shares may only be issued by joint stock companies and express ownership of the company's assets.
AND AFTER
If a company issues shares for the first time, it is a so-called Initial Public Offering (IPO). At this stage, the company becomes publicly listed and its shares are traded on the stock exchange. If the company's shares are already traded on stock exchanges, the company may issue additional shares to raise further capital. Investments in IPO shares are gaining the attention of a wide range of investors, as it is the first opportunity to buy shares of dynamically developing companies.
Share in the ownership of the company
Not every shareholder who buys shares, both on an IPO and at a later date, has the same rights and the same share of ownership. The distribution of dividends is governed by a dividend policy that is defined and applied by the company. Every shareholder is entitled to dividends (profit participation). The amount of the dividend depends on the number of shares you own. If the dividend is PLN 50 per share and you have 10 shares, you are entitled to a dividend of PLN 500. Dividends are paid on an annual, semi-annual or quarterly basis.
When do stocks rise and fall?
Jak fungují akcie The price of a share is subject to the same laws of supply and demand as other goods or services. If the products or services provided by the company are successful, the share price tends to rise. When investing in stocks, it is important to select stocks with the appropriate growth potential. By investing in stocks, you buy a part of the company and become its co-owner, so you have to believe in the future development of the company. In order to understand the mechanism behind a rise or fall in stock prices, it is important to remember that the price of a stock depends on expectations for the future development of the company. The current share price already contains public information about recent events related to the company, but also about its current situation and current expectations.
In practice, this means that if, for example, Apple released information that it expects a 10% increase in revenues in the next quarter, then this information should be included in the current share price. With sales rising 10% at the end of the quarter, Apple shares will not rise, although this is a positive development. In this case, however, as this information was already expected, it was included in the share price. The rising share price is of course the wish of every investor. A stable growth rate ensures capital growth, which means that the shares can be sold at a higher price than they were bought at, and the difference in profit means capital gain.
If the stock price will fall if the company is not profiting and the financial report is disappointing or the quarterly data is worse than expected, then we can expect revenues and profits to decline in the future.
Of course, there are also other factors, not always dependent on the company, that may affect the share price. External factors such as the political situation, inflation, interest rates, tax burdens, economic cycles or unpredictable events such as wars, earthquakes, etc.
Why is it worth investing in stocks?
Investments in equities are considered relatively safe and low-risk investments compared to investments in other assets. The advantage of equity investments is often the high liquidity of the markets, which allows you to buy or sell shares at virtually any time. Low fees and the ability to personally manage your portfolio are other benefits of equity investments. The disadvantages include the practical impossibility of influencing the business of the company, low awareness of retail investors and, of course, the possibility of bankruptcy of the enterprise in extreme cases.
Long-term stock valuation
proč investovat do akcií
The long-term increase in profitability is the main factor that makes equity investments so popular. The key to a successful investment is generally that the profitability of the investment must beat inflation. Currently, it is around 2.5% per annum, the minimum indexation through equity investments must be greater than 2.5%. The maximum annual indexation is unknown, but the best investors have reached the threshold of around 20% per annum, investing long-term and with a lot of capital.
Possibility of regular income in the form of dividends
Annual percentage valuation of stocks is one option that can make you earn from equity investments. The second option is to pay dividends on a regular basis. Of course, not every company pays dividends, and not all dividends are equal. The amount of the dividend is expressed as a fixed amount per share (for example, $ 10 per share) and is one of the factors affecting the share price. Its size usually depends on the company's profits, but there are companies that have no profits and do not pay dividends. Paying regular dividends is a very desirable factor for investors who, in many cases, can decide whether or not to buy shares.
Diversification of personal finances
For some, equity investments may be the main source of income, for others it may be just a form of financial portfolio diversification. Investing in stocks is not complicated and has many advantages over investing in real estate or works of art (ease of access, low fees, high liquidity, etc.). In addition, you can benefit not only from rising share prices, but also from regular dividends. It's no surprise that stock buying is gaining ground as an increasing proportion of the public want to invest their money.
Free investment e-book
Do you want to get inspired in building your portfolio with the most successful investors in the world? Then download our free e-book.
E-mail
By filling in your details and clicking the button above, you agree that LYNX will store this data and will contact you by email or telephone for marketing purposes. Telephone communications may be recorded to improve our services. You can unsubscribe at any time by writing to marketing@lynxbroker.pl.
What is a dividend?
The dividend is a share of the profit that the company pays to shareholders. Anyone who owns shares in the paying company is entitled to the payment of that dividend. The general meeting of the company decides on the date and amount of the dividend payment.
How does the dividend work?
The dividend represents the company's profit share that the company pays out to shareholders.
The amount of the dividend is determined by the company's dividend policy. One of the main factors influencing the amount of dividends is the company's profitability. The dividend can be stable, increasing continuously or variable depending on the amount of profit. On the other hand, it must be realized that when paying dividends, the company will lose funds that it could otherwise have invested in its development and growth.
Dividenda - what does it eat?
The dividend is paid in the so-called payment day. For a shareholder to be entitled to dividends, he must own the shares prior to the dividend payout date. The last day the shares must be in the possession of an investor is the so-called ex-dividend date. Let's assume that the company pays a dividend on 01/05/2018, while stipulating that to be eligible for payment, you must have a share from 01/04/2018. If you buy the share on 2/4/2018, you will not be entitled to any dividend.
Each company decides about day of dividend payment, and each shareholder (or potential shareholder) can easily find information about it. For a full understanding of important data for dividend investors, see their detailed explanation in our Help Center.
The dividend is paid out by assigning cash flow to each investor's investment account. The company pays dividends from its net profit after tax. In addition, the dividend received is subject to taxation by the investor as own income.
Taxation is based on applicable legal rates. For example, dividends on US stocks are taxed with income tax of 15% without deducting tax deductible costs from income.
How to trade stocks?
Investments in stocks take place on stock exchanges around the world. Nowadays, stocks trading mainly uses the online environment, which allows you to buy or sell the required titles from home via your computer or smartphone.
How to buy stocks without a broker account and internet? Today it is almost unimaginable. but a long time ago, traders shouted at exchanges and used buy or sell gestures to instruct the brokers who supplied them with securities. Today everything is done electronically with just a few clicks of the mouse and you can own stocks of Apple, Google, Microsoft or other famous companies. All you need to do is have an open brokerage account (analogous to a classic bank account) and internet access.
What is the stock exchange?
A stock exchange is a place where investment instruments are traded according to pre-established rules. An example is the Polish stock exchange on the Warsaw Stock Exchange. It is an institution that organizes and supervises the smooth conduct of transactions and their proper settlement.
There are two sides to it - investors and issuers:
Investors can purchase equity instruments (shares) with the possibility of obtaining future profits.
Issuers have the opportunity to raise capital for their further activities and development.
How does the stock exchange work?
How the exchange works The exchange operates as a two-way auction where buyers and sellers meet. Buyers express a willingness to buy, in other words, they express an interest in certain investment products (e.g. Apple stocks). Sellers are ready to sell or offer certain investment products.
The difference of supply and demand is the current market price. The imbalance of these forces results from price fluctuations and rising or falling tendencies.
The stock exchange oversees that trading is carried out in accordance with the rules and no one has an advantage over the rest of the investors. It also sets some commercial standards (order quantities). The stock exchange infrastructure itself is a very complex network of powerful computers that constantly calculate purchase and sale orders, execute and record transactions, and update market data.
What is a broker?
The broker is an intermediary between the investor and the stock exchange. Without a broker, you cannot buy any stocks, unless, as an investor, you have a place to pay directly on the stock exchange. A broker is a brokerage company that you, as a trader, want to work with. The broker charges clients for transactions.
What is a broker?
The broker will allow you to open an investment account under your own name. You send money to it, which you can then buy shares with. The broker also provides access to a trading platform that allows you to enter orders, provides market data to see current prices. The broker should be your partner in investing and trading in the stock market, and such a partner must be well chosen.
How should a good broker work?
A good broker should meet several criteria. As it is a financial institution, it must be subject to the applicable laws and directives of the country concerned. Brokerage firms operating in Poland are supervised by the Polish Financial Supervision Authority (KNF). It should be a company with sufficient capitalization to cover losses that may arise from unexpected fluctuations in the market if necessary. A broker should definitely separate their assets from their clients' investment accounts and all investment accounts should be insured.
How to buy stocks?
Below is information on the steps you need to take to start trading stocks.
Open an account with a broker
The first step is to open an account with a broker. You cannot access the exchange without a broker. Setting up a inwestujfinanse.pl account is as easy as setting up a regular bank account.
In the case of LYNX, all you need to do is complete the online form, send the scanned identification details (two IDs, a bank account document from which the first capital payment will be made) and the account will be created within a few days. After making a bank transfer to your account, you can make investments.
Choice of the market - Pol ska or foreign markets?
If you have an open brokerage account with adequate capital, it's time to choose the specific market - the stocks you want to invest in. At LYNX, we offer many markets and products, you can choose Polish stocks from the WSE (eg KGH, PGE, PKO, LTS etc.) or buy foreign stocks (Apple, Google, Coca-Cola, BMW etc.).
How to buy shares on the platform? You need to know the company name, ISIN or company ticker. According to these data, the platform will search for a suitable market on which this instrument is available for trading.
An example of the LYNX Trading investment platform - placing an order
Get to know the platform
The investment platform is software that you can install on your computer - LYNX Trading or trade on the web platform - LYNX Basic. Thanks to the trading platform, you can buy stocks at a fixed price. Introducing the platform to use is a standard part of any good brokerage service. At LYNX, we will provide a free platform as soon as you activate your account.
Introductory instructions
Placing an order to buy / sell a given instrument at a specific price is the basic knowledge that everyone who starts operations on the investment platform must have. In principle, it is not complicated as you can trade stocks with just a few clicks.
Now that you know how to buy stocks, it's time to find out which strategy you should use.
How to create an equity investment strategy?
Knowing how to buy stocks efficiently takes some effort and a willingness to learn something new. Nobody is born as an investor and gets no investment education. Depending on the time horizon, we can divide equity investments into two types - long-term and short-term.
Long-term investments vs. active trade
Long-term investments rely heavily on fundamental security analysis. Long-term investors usually monitor and analyze the financial statements of companies, the proportions of individual ratios, e.g. P / E ratio, etc.). In this way, they try to understand the sector in which a given company operates, learn about the company's products and services and the specificity of its management. On this basis, they choose stocks of companies that are currently relatively cheap but with long-term growth potential.
Long term investors are the biggest names like Benjamin Graham, Warren Buffett, Peter Lynch etc. These investors do not consider weeks, months or years, but long term and are generally oriented towards long term investments.
Short-term investments are more active trading, often referred to as swing trading or intraday trading. Short term traders rely more on technical analysis, follow price charts and use different indicators (MACD, RSI). Fundamental analysis may or may not be that important, but of course it is always good to know as much information as possible about a given instrument. Short-term investors are also more likely to trade short, meaning they are speculating on a downside.
Portfolio diversification
Besides the question of how to buy stocks, the important question is how many types of stocks should I buy. Diversification is a concept that expresses the division of strategy and the elimination of risk, not relying solely on one particular investment product, but dividing it into several individual areas. The well-known proverb "Don't carry all your eggs in one basket" expresses the idea of diversification. The main purpose of diversification is to reduce the risk. But it is a two-way weapon because as risk is reduced, so is profit. There are also investors who do not believe in diversification, on the contrary, advise "choose the right eggs (shares), put them in one basket and watch". An example is Warren Buffet.
However, beginners are advised to diversify. The portfolio can be diversified through different sectors. For diversification to be meaningful, it is imperative to split funds into low positively correlated stocks. It is good to choose stocks from different sectors or from different countries of the world.
psychologie and obchodování
psychology
It is said that investor psychology is a key success factor. Psychology definitely plays an important role as our inner feelings and thoughts influence our behavior. Financial markets are where psychology is largely designed. Man as a social being has a natural need to deal with and copy the behavior of others. Few people can fight the crowd. Crowd psychology is relatively predictable, and financial markets largely mirror it. Prices tend to be the opposite of what the crowd thinks. The crowd, the audience very often get lost in the stock market.
The psychological environment of the entrepreneur must be somewhat contradictory to what the crowd thinks. At the same time, a person must be humble and strong enough to admit that he has been wrong. You always have to to have a plan and stick to it. You know why you enter the trade, for what purpose and what plan you are to implement.
Setting goals
Setting realistic goals for trading and investing should be learned from the very beginning. The best investors earn around 20% per year from long-term investments. It would be naïve to think that a novice can add 100% to his account within a year. Of course, this can happen - there are markets that are highly volatile and offer high profit potential. But the question is, what are the risks in this case? The only factor that can be controlled in the market is precisely the risk. The goal is always based on risk, and setting too high goals leads to too much risk and the risk of a decline in the value of own funds.
Free information package
Want to learn more about LYNX and get your free investment eBook "14 Tips to Become a Better Investor"?
What stocks to trade on?
At LYNX, you can trade stocks of almost all famous companies around the world. You can trade US, German or Chinese stocks. It is only up to you.
How to choose the right action? That's the million dollar question. Nobody has a crystal ball and nobody knows which direction the market will go in the future. You need to know what you want to buy as an investor. There are certain stock pricing techniques, basic analytical models or technical analysis tools. Everything serves one purpose - to find the right company whose stock will go in the desired direction. We have written some tips as an introduction to technical analysis. You can also get inspired by the way so-called investment gurus, who have long earned money on the stock exchanges, operate.
Time to enter the market
Entering the market is the first and most important step in trading.
The right time to enter the market is crucial here, especially if you choose a short time horizon. If you want to invest over the long term, time to market is a rather secondary issue. While technical analysis can help, in the end, it doesn't matter if you buy at 100 or 101. In general, it is advisable to buy when the price is low, but this may not always be successful as you can sometimes lose investment opportunities waiting too long .
In the case of short-term or even daily trading, the time to go public is more important. In such cases, different approaches to technical analysis are used. In the course of daily trading, time to market is very important and is often decisive for profit or loss.
Possibility of diversification through the so-called ETF
A very popular type of equity investment is ETF investment, which stands for Exchange Traded Funds. ETFs are similar to standard mutual funds but are listed on the stock exchange.
ETFs operate by buying stocks of companies that operate in a given sector, and these funds then issue their stocks traded on an exchange. ETFs are a good way to buy stocks in a particular sector. With ETFs, we can buy stocks of oil companies, for example. If for some reason you want to speculate on an oil price increase, but do not want to buy shares of one particular oil company, you have the option to buy an "Oil ETF". The advantage of investing in ETF markets is that through diversification, they cover the entire oil sector. The disadvantage is the possibility of losing assumed profits if the stake potential in the sector is not strong enough.
Where to find inspiration for investing?
Below are some websites that you may find useful for learning more about capital market investments.
LYNX Rates & Charts - Historical Charts and Live Quotes, including key background information and dividend history, as well as comparisons to other resources in the sector.
FinViz - Advanced stock chart that allows you to search for stocks by selected parameters.
Seeking Aplha - Want to know how to buy stocks? This is the perfect source for keeping track of the latest action news.
Stock Exchange Opening Hours - Find out when you can trade in your favorite markets.
Stock Market Closing Hours and Days - Find out when exchanges are closed.
Investopedia - As the name suggests - serves as Wikipedia for the investment world. Offers a detailed explanation of all investment concepts.
Both beginners and advanced investors can gain inspiration and, above all, proven market knowledge by downloading the free ebook of 11 proven investment strategies of global gurus, the ebook can be downloaded at www.lynxbroker.pl/guru-ebook.
I already know how to buy shares, what next?
If you already know how to buy shares, all you need to do is open an account with a broker who has access to the stock exchange.
You can be a stock investor who is rather conservative and buys. Alternatively, you can be more speculative and buy emerging stocks with more profitable potential. There are plenty of ways to buy stocks. It's all up to you, the investment opportunities at LYNX are almost endless.