For many of us penny-pinchers the idea of dabbling in stocks and shares is daunting, risky and yeah – sounds complex and foreign. But if you are curious about stocks and shares and would like the concept explained in plain English, read on to discover my quick guide for investing in the stock market and buying and selling shares.
What is a share?
In short, if you buy shares in a company, this makes you a part-owner of this company with a stake in the business. For example, if a company issues 1000 shares and you buy 100 shares, this means that you will own 10% of that company’s assets and earnings. Shares are also called stocks, securities and equities.
How does share trading work?
A company will issue shares and people will buy them. The company will do this to create money for growing the business. The company will not continue to make money out of the shares themselves, but investors will continue to trade the shares via share exchanges, brokers or in other ways as defined below.
How you can buy and sell shares?
The most common way people invest in shares is via a broker or broking service. These are the top five ways a person can invest:
- Share exchanges
- In a float
- Managed fund
- Employee Share Scheme
Is it risky to buy shares?
There are many different types of shares ranging from very secure long-term investments to high – risk shares.
What are the benefits of buying shares?
Shares are considered by many as a good investment because of the possible earnings and long-term capital from a growing an asset that increases in value over time. There’s also income that can be received in the form of dividends to shareholders (common or deferred shares). Lower tax rates are also a reason investors might purchase shares.
What are the risks of buying shares?
Shares are dependent on the market and can rise and fall dramatically if there is a shift in the market. Further, if a company liquidates or goes bankrupt shareholders are often the last to be paid or potentially may not get their money back if this happens. Dividends will also fluctuate month-to-month, so if you decide to invest you’ll need to be ready for the rollercoaster that is the free market!
What is Forex trading?
Forex trading is the trade of foreign exchange currencies. This type of trading is both popular and risky, because the potential returns and investor might make. The Forex market is one of the world’s largest forms of trading with a daily global trading volume of approximately US$4 trillion. This market is bigger than the NASDAQ and New York Stock Exchange combined.
How to choose shares
It is very important to do your research and learn as much as you can about shares before you venture down this path. The Australian Stock Exchange offer a Free Online Share Course you can undertake as a starting point. It can be very rewarding to build a share portfolio and for many can be either a serious venture and or even hobby that can produce good returns.
Finally, shares are a great way to build wealth over time. Always do your research and seek financial advice before considering investing in the share market.