Who may be interested?
- The state. It is interested in the stock market operating at its acme, being both transparent and efficient. Why? The funds raising by the shares immediately start working to the advantage of the economy. New industries and positions for employment are created; surtaxes reinforce the budget.
- The people. In countries with an efficient stock market, people get a convenient instruments for long-term investments and savings. Instead of immediately spending all that has been earned, citizens give away part of their money on further economic increase, which leads to higher GDP and higher living standards.
- Pension funds. They play a very important role in the Western economies. A stock market, which overtakes in its earning power inflation and bank deposits over a long period of time, is vital for pension funds. Only in this case they get the opportunity to save and increase the savings of tens of millions of people.
How Do Companies’ Shares Operate?
By the initial public offering (IPO), the company gains money for its further development. But what happens next with the shares?
They are listed at stock exchanges, and their value is constantly changing. There are dozens of factors that can affect the value. For example, the amount of profit, the volume of sales, the prospects of an industry and the state, management effectiveness, etc.
What the aspiring investors should know is that the value of shares often reflects the opinion of the trading participants on possible profits. That is, if there is an opinion that the given company and its profits will grow rapidly, the price of its shares is often much higher than the average P/E (price / earnings). And vice versa. If the industrial sector itself is in decline and investors see no prospects, the company's share value will be low.
How to trade shares?
As of today, what is required for trading shares?
• computer and telephone;
• brokerage account;
• financial awareness.
An extremely desirable point, which is vital for even 1 transaction. Nowadays, most brokers with whom you open an account offer tuition. Also there are hundreds of manuals, training programs and on the Internet.
How to Check Stocks?
Are they reliable? Are they worth investing in? This is a topic for the entire book. However, we will dwell only on a few basic points, that every new investor should know.
- You need to be cognizant of the company’s activity area. If you drive a BMW and like this car, you believe that the next model will be still better and you will purchase them. It is a ‘check sign’ when studying the pros and cons of investing in the company.
- Buy shares of those companies listed on the stock exchange. Why is it relevant? The seller of gardening tools has issued shares, and you can buy them. But, if you do not have knowledge in accounting, finance, etc., it will be difficult for you to judge what actually happens with the shares and whether there is any kind of abuse on the part of the company. If these shares are listed at stock exchange, even before the trading, the expert analyses of the company’s operations have been conducted. And they also ensure by regular monitoring that no such thing ever happens.