Shares
What is a share?
Shares are the basic unit of ownership in a company. When you buy a share, you become the owner of a percentage of the company. This means that a share is like a small key that opens the door to participating in the company's growth story.
Companies issue shares to raise capital. By investing in a share, you are essentially believing in the future of the company and hopefully in an increase in the value of the share. The price of a share depends on a number of factors, including the company's profitability, market conditions and investor confidence.
What are the sub-categories of shares?
The world of shares is wide and diverse. It is important for investors to be able to categorise shares in order to find the right securities for their investment strategy. By combining these approaches, investors can select stocks that match their objectives and risk tolerance. Here are some the main ways of classifying shares:
Market capitalisation
Divides stocks into large companies (large and stable), medium-sized companies (growth potential) and small companies (high risk and return).
Sector
Groups shares according to the branch of activity (technology, health care, etc.). This allows investors to focus on the sectors of the economy where they expect good returns.
Investment style
Focuses on the company's growth potential and valuation. Growth stocks are expected to generate faster returns, while value stocks tend to trade below their real value.
Dividend payment
Allocates shares between dividend-paying and non-dividend-paying shares. Dividend shares are suitable for investors who want a regular income, while others focus on increasing the value of the share.
Geographical location
Classifies shares by the country of the company. This is useful for investors who want to invest in specific markets or diversify their portfolio internationally.
In this article you will find answers to the questions:
What is a share?
What are the sub-categories of shares?
How to make money with shares?
What are the advantages and disadvantages of trading shares?
What are the risks associated with shares?
How to trade shares?
How to make money with shares?
There are two basic strategies for generating financial returns from equity investments:
Capital growth
This is the increase in the value of shares over time. By buying a share at a lower price and selling it later at a higher price, the investor makes a profit on the difference. The company's profitability, market performance and investor confidence all influence the share price.
Earning dividends
Some shares pay investors regular dividends, i.e. a share of the company's profits. For the investor, this is similar to the income usually paid on a dividend payment schedule. Dividend stocks are suitable for investors who want to receive a regular cash flow from their investments.
Dividend stocks vs growth stocks
Investors often choose stocks according to whether they want more growth potential or regular income.
Dividend shares
These are usually shares in stable and financially sound companies that pay regular dividends to investors. Although their share prices may rise more slowly, they offer investors a reliable source of income.
Growth shares
These are usually shares in smaller and faster growing companies with little or no dividend payments. Investors are hoping for a significant increase in the value of these shares, but the share price is also more volatile.
Other ways to earn
In addition to the above, an investor can also earn through put options (the right to sell shares at a fixed price), but this requires more knowledge and experience.
Stock selection should be based on investors' investment objectives and risk tolerance. It is sensible to diversify the portfolio by combining both dividend and growth stock investments.
Advantages and disadvantages of shares
Equity investments offer a number of potential benefits, but it is also important to consider the potential risks. Here is a brief overview of the advantages and disadvantages
Benefits
Cons
High yield
Over time, equity investments can offer higher returns than traditional savings products.
Growing your own capital
Rising share values allow investors to grow their capital over the long term.
Earning dividends
Some stocks pay regular dividends, providing investors with additional income.
Ownership and control
Buying shares gives the investor a small ownership stake in the company, allowing them to participate in its growth story.
Diversity
The stock market offers a wide range of investment opportunities different sectors and market capitalisation.
Market risk
Share prices can fall, causing losses for investors.
Company risk
A downturn in the performance of individual companies can affect the value of their shares.
Volatility
Share prices can fluctuate a lot in the short term.
Liquidation risk
Some shares are less liquid, i.e. they may be more difficult to sell.
Timeliness
Investing in shares requires investors to spend time researching the market and monitoring their investments.
Equity risks: it's important to be aware
The potentially higher returns on equity investments also come with certain risks. It is important for investors to understand these risks in order to make informed investment decisions.
Market risk
Overall market sentiment for shares is changing and share values may fall. This means that an investor may sell shares at a loss if, for example, the price of the share no longer returns to the purchase price.
Volatility
The performance of individual companies could fall, affecting their share prices. The value of a share can fall significantly due to poor management, changes in the economic situation or sector problems.
Liquidation Risk
Some shares are less liquid, i.e. they may be difficult to sell at the market price. This means that an investor may not be able to get the price he wants if he wants to get rid of shares quickly.
Company risk
The performance of individual companies could fall, affecting their share prices. The value of a share can fall significantly due to poor management, changes in the economic situation or sector problems.
These risks can be mitigated a long-term investment strategy, portfelli diversification and carrying out in-depth market research. Equity investments are suitable for investors who can tolerate a certain level of risk and are prepared to devote time to monitoring their investments.
Buying and selling shares: market fundamentals
Shares are bought and sold on stock exchanges, regulated market platforms where investors and sellers can transact. Individual investors do not usually deal directly with an exchange but use an intermediary to buy and sell shares. An intermediary is a licensed financial service provider, such as various banks and platforms, that connects investors to the exchange.
There are two main ways to buy and sell shares:
Market order (market order)
The investor instructs his intermediary to buy or sell shares at the best available market price. This is the quickest way to complete the transaction, but the price is not guaranteed.
Limit order
An investor instructs his or her intermediary to buy or sell shares at a fixed or better price. This helps the investor to control the price of the transaction, but the order may not be executed if the desired price is not reached.
Share prices are determined by supply and demand principles. Investors wishing to buy shares submit purchase orders (demand). Sellers, on the other hand, make selling requests (supply). A transaction takes place when the price offered by the buyer is at least as high as the price demanded by the seller.
Trading shares can be complex and requires knowledge of the market, the factors affecting share prices and the fees charged for transactions. Before buying shares, it is important to research a particular company and understand the risks involved in investing in shares.
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