Securities - this is a very reliable investment, which is at the same time a profitable way to increase capital. But in practice, there are quite few people who more or less imagine what this trading process is.
general information
The stock market specializes in transactions with commodity and money securities. These are stocks, checks, bonds, bills and so on. It should not be confused with the foreign exchange market, because the processes of purchase and sale of state treasury signs of different countries are carried out on it. In fact, the stock market is a whole complex of mechanisms that allow those who wish to make transactions with securities and receive income from them. The first organizers of the securities trading appeared centuries ago. Since then, this direction has been continuously developing.
What is presented on the market?
The following securities are used as the main product:
- Stocks. They are equity securities of specific enterprises. Its presence gives the right to a part of the company's income (in case of prosperity) or property upon liquidation. Stocks are high risk financial instruments. This is offset by the fact that trading them allows you to get high profits. It should be noted that now they are trading not so much in stocks as in the course of their prices.
- Bonds. This is the name of securities that can be sold at face value with an addition of interest. In fact, these tools are used by companies to borrow from investors. In this case, you will have to return with interest. This tool was invented in order to remove the intermediary in the person of banks between the borrower and the owner of the funds. Bonds are not very profitable, but they are also an order of magnitude less risky than stocks.
- Bills. This is not the most used security these days. But it is an obligation to return the debt, which is issued on the security of property.
- Checks. Have a lot in common with bills. This security is used to certify the holder’s right to receive a certain amount from the bank.
- Bills of lading. This is a security that is issued by freight carriers to its owner and gives the right to receive it.
- Bank certificates. This is a certificate of contribution with an obligation to issue it along with interest after a certain period.
About Diversity
Organization of trading on the securities market in general is an extremely complex structure, which has many characteristics. Let's look at the main types:
- At the stage of treatment. Distinguish between primary and secondary stock markets. In the first case, it is supposed to issue securities that come into circulation. On the secondary, trading in previously entered financial instruments is carried out.
- By type of regulation. Allocate an un / organized market. The peculiarity of the first is that it is based on private agreements between parties to the transaction. An organized market is different in that it works according to clearly defined and fixed rules. It should be noted that the first option is almost never found.
Other differences
May also stand out:
- By the timing of the execution of transactions. There are cash and urgent types. In the first case, the transaction is executed immediately. In the second, it can be stretched for a certain period, such as several weeks or even months.
- By the way of trading. In this case, distinguish between traditional and computerized. The first option involves working the same way as many years ago. That is, both sides directly meet. Making computerized transactions does not require a personal presence. All operations are carried out using a global network.
- At the place of conclusion of transactions. In this case, an off-exchange market is distinguished. In the first case, do without special structures. The second option provides for work on the exchange site.
For beginners, this variety of classifications can be confusing. But in order to understand the activities of organizing the trade in securities, it is necessary to understand all the mechanisms and their relationships.
A little about the process itself
We will not go deep in particular, but consider the simplest and most well-known option as a model. Securities are traded on stock exchanges. They have the status of specialized sites where you can sell and buy financial assets. It should be noted that only legal entities can deal with this matter. But this does not mean that the path is closed to ordinary people. Any person can take part in the operation. But for this he needs an intermediary, who is called a broker. He will make transactions on behalf of a specialized company. A person receives income by paying a certain percentage to the representative for participation. To succeed, you must at least have a minimum knowledge of the economy and understand the mechanism and specifics of work. Let's do it.
Important elements of the securities trading mechanism
The most minimally necessary basis is:
- Quotation tables. They bring together information on various types of stocks. So, the minimum and maximum value of the value, the daily turnover, the values at the time of opening and closing of the auction are indicated.
- Charts. Used to visually express the data that are in the tables. Their convenience lies in the fact that you can see information for a certain period of time.
- Stock Indices. Used to indicate the direction of movement - fall or growth. True, not one type of stock, but the entire market as a whole. It should be noted that there are a lot of indexes (about two and a half thousand). But you do not need to know them all.
- Technical and fundamental analysis. Do not be alarmed by these words. They mean the basics of financial mathematics that will allow you to calculate and analyze the profitability of the transaction.
- Professional terminology. Without her knowledge and understanding, it is difficult to count on making a profit. And it is advisable in this case not to be limited to just reading the literature, but to receive a specialized financial education or to enroll in thematic courses with sensible mentors.
Earning income
All types of securities trading involve transactions with the goods. This must always be remembered. And in this case, the basic principle of doing business is always the same: to purchase as cheaply as possible, and to sell at the maximum margin. Since the cost is constantly changing, it is important to adequately determine the best moments for these operations. Although it should be noted that sell / buy is not the only option for generating income. In the case of securities, the benefits can be obtained simply by owning them. For example, in the form of sales of debt or interest payments, dividends.
Specificity of income
In many respects, the value obtained depends on the demand on the market (liquidity) and the type of securities. Here are the same stocks. They are considered the most risky. But at the same time, acquiring them, you can count on obtaining substantial income. By working with them, a person can earn huge profits and lose his savings. Bills, savings certificates and bonds can not boast of large incomes. But the risk of losing funds here is very small. In assessing future earnings, liquidity plays an important role. In fact, this is an opportunity to sell securities at a cost as close as possible to market values at any given time.
The specifics of working with stocks
Although this is a rather risky area, it is also quite attractive, but it deserves attention. What should a beginner pay attention to? In this case, one can advise highly liquid shares of large companies (they are often called blue chips). This is a good choice for those who are taking their first steps. Indeed, the fluctuations in this case are insignificant, and the cost is high and prone to increase. Low liquid stocks that are not in demand are a more risky tool. More experienced players turn to him, which can turn the fluctuations to their advantage. True, for this it is necessary to use a fairly substantial amount to get a tangible gain.
Action strategy
Organized trading in securities involves a certain approach of actions that allow you to achieve your desired goal - to receive the maximum possible income. The most promising in the general case is recognized as a diversification policy. It involves a competent and balanced distribution of assets. Thus, funds are allocated both to low and highly liquid assets, and to risky and stable financial instruments. It is difficult to get a complete picture of this by reading only literature - for this you have to learn a lot in practice. And it is very advisable under the guidance of an experienced and successful broker. In general, when choosing a strategy, there are many different options. Which one should be acted upon, each one decides for himself.
Why is it advisable to act through an exchange?
Financial trading in securities can be carried out in various conditions. But it is better to start doing business on the stock exchange, even taking into account the fact that for this you have to pay a certain percentage. Why so? The fact is that before placing securities in this case must undergo a listing procedure, that is, a preliminary check. In addition, participating in exchange processes, you can catch the process of initial placement. And this in some cases can turn out to be significant (and possibly even a multiple increase in assets). Another important fact is the significantly reduced risk of meeting scammers.
The specifics of working on the exchange
First you need to understand the terminology to understand the essence of the processes. For example, trading on a stock exchange requires a person to distinguish between a limit order and an application for purchase / sale. So, in the first case, the client allows the broker to set a price limit on their own. Whereas the second option involves focusing on market indicators. When working, the influence of priorities should be taken into account. Both price and time can be used as cornerstones. In the first case, it is understood that orders of customers who are willing to pay more will be processed first. Whereas the priority of time means that preferences are received as they become available.
What risks do you need to remember?
Even if securities are traded on stock exchanges, there are always certain dangers in carrying out activities that can lead to financial losses. Do not forget about it. Here are the most common causes of loss:
- Price risks. This is understood as the probability of a decrease or even loss of the entire amount of cash that was invested in securities.
- Liquidity risk. By this we mean a problem that arises as a result of a negative situation on the market, which does not allow to close a previously opened position.
- Risk of default. It occurs in cases of insolvency, bankruptcy or illegal actions of the issuer / other bidders.
- Currency risk. Includes adverse changes in the exchange rate of monetary units of different countries.
- Operational risks. Relevant for legal entities in the event that the funds of several customers are on the same account, as well as when transferring client finance.
- The risks of evening time. They arise if securities are traded after 18 hours. In this case, operations are conducted without the support of a broker. In this case, all risk depends solely on the client.
The above list is not limited to. It is not comprehensive, nor does it encourage customers to give up trading. The above list only displays those possible problems that you may encounter when conducting activities on trading floors.
Conclusion
When making operations, it is advisable to maintain a balance between profitability and liquidity by correctly distributing the available funds. Then the chances that the securities trading will be successful increases. In this case, the formed investment portfolio allows you to create a safety net and not risk all the means, so that even if they were miscalculated, they would not be lost.