Invest in Stocks & ETFs - How To

Learn more about how to buy stocks, advantages of buying stocks, how does the stock market works and what is the stock exchange, the difference between ETFs and Stocks, and much more..

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What are stocks, shares and equities?

Even used interchangeably, these terms can cause sometimes confusion, even there are technical differences between shares, stocks and equities. These terms are used to describe units of ownership in one company, out of which the shareholder will receive dividend payments or voting rights, if granted by the company.

All of the mentioned above are giving direct exposure to a company’s performance. Important to mention is that shares values will increase if a company is doing financial well, and their value will fall if a given company is doing financialy bad.

The main reason why companies are listing on the stock market is to raise capital which is used afterwards to invest, expand or other purposes.

How many shares can a company have?

The is no maximum amount of shares which a company can issue, usually this vary from company to company. Obviously, the minimum amount of shares that a company can issue is one. In time, the number of shares can increase, depending on many factors.

How does the stock market work?

Investing in the stock market can be tricky and this kind of investment carries risk, but on the other hand, it can be one of the most efficient ways to build up one’s net worth. In order for you to understand how the stock market works and its mechanincs, we should begin with the definition of a stock.

SHORT TAKEAWAYS

  • Stock markets represent all the investors which come together to buy and sell shares in public venue. Comparing to the past, now these exchanges are functioning as electronic marketplaces
  • Stocks or shares represent ownership equity in the company, and they give voting rights and residual claim on companies earnings in form of dividends to the shareholders
  • Share prices are influenced by buyers and sellers which place orders, and usually are maintaned by specialists which ensure a fair market

What is a Stock Exchange?

Stock exchanges are secondary markets, where existing owners of shares can transact with potential buyers. It is important to mention that a listed company on the stock market does not buy and sell their own shares. When you buy a share of stock, you are not buying it directly from the company, you are buying it from other existing shareholder which decided to sell. Also, when you sell your shares, you are not selling them back to the company, you are selling them to some other investor.

How to buy Stocks?

If you want to invest in something, you can take in consideration to invest in stocks. Learn how to buy stocks.

Over long periods of time, stock can generate investment returns that are superior to those from every other asset class. When investing in stocks and shares, you gain from capital and dividends.

Gain in this investment occurs when you sell a share at a higher price than the price you gave for it. Dividend is the share of profit which is distributed by the company to its shareholders.

Stock Market Indices

Stock indices represent aggregated prices of a number of different stocks, and their movement is the net effect of the movements of each individual component. When we talk about stock market, we often refer to one of the major indices such as Dow Jones Industrial Average (DJIA) or the S&P 500.

The NYSE and Nasdaq are the two largest exchanges in the world, based on the total market capitalization of all the companies listed on the exchange.

In addition to the DJIA, other indices worth to mention, are:

  • Nasdaq Composite
  • FTSE Index
  • Nikkei 225
  • Dax Index

What's the difference between ETFs and Stocks?

ETFs

  • ETFs offer shares of multiple companies within a packaged bundle
  • ETFs aren not bound to a single company
  • ETF are traded just like stocks, and you can buy as many as you wish
  • Slightly less risky because they’re a pool of several investments
  • ETFs may be more tax efficient than some traditional mutual funds

Stocks

  • Stocks represent shares within individual companies
  • More risky, as they’re tied to the performance of one company
  • Slightly more liquid, but it depends on the stock
  • Stocks and ETFs are equally risky in that their relative risk depends on which stock and ETF you are investing in

ETFs vs. Stocks: Which should you buy?

So you finally decided to invest some money. But what should you buy? Stocks or exchange-traded fund(ETF)?
In order to take the proper decision, you must take a look over the risk and how to reduce it, so taking this decision is no different from any other investment decision.

We cannot tell you in which to invest and which one to buy, but we can tell you that you should take advantage of this. Don’t forget that stocks are individual, offering you shares in a specific company, while ETFs give you access to multiple corners of financial markets, been a collection of stocks, bonds and other.

Types of ETFs

  • Diversified passive equity ETFs – wich purpose is to mirror the performance of the widely followed stock market benchmarks
  • Niche passive equity ETFs – can offer more exposure to the investors, in order to help them with their strategies
  • Active equity ETFs – allows you to use your own judgment in selecting investments
  • Fixed-income ETFs – are more focused on bonds rather than stocks

ETFs: Advantages & Disadvantages

Advantages
  • Trades throughout the day on an exchange
  • Potential tax efficiency
  • No minimum investment dollar amount (may not buy fractional shares)
  • Low expense ratios
  • Can be sold short and bought on margin
Disadvantages
  • Brokerage commissions incurred
  • Flexibility may encourage frequent trading, potentially negating the tax-efficient edge
  • Capital gains occasionally distributed

How to get started in the stock market

Investing in the world’s leading stocks is now more affordable than ever. Even so, every investment choice should be made based on the risk involved for the individual and their investment goals and strategies. What is right for one investor may not be for another.

In order to start investing in stocks or ETFs, you will need to choose the right trading platform, create an account and start trading. You can choose any platform you wish, but if you are a beginner for example, you may choose eToro platform, which is offering you the possibility to copy other experienced investors. Please note that, 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.