Why Invest in Stock Trading

Companies that are in the start-up or growth stage usually need capital. Lenders, such as banks, are usually only willing to provide this capital to a limited extent. Banks usually charge a high interest rate for these loans. Therefore, shares offer companies an alternative to debt capital.

The sale of company shares brings fresh money to the company, which can be used for its development. While a company pays dividends to shareholders when it makes a profit, it is not required to do so when it makes a loss. With a loan, companies have to pay back the money with interest, whether they make a profit or not. Of course, it is not only companies that benefit from stocks and the equity markets. Investing in stocks helps individual investors build wealth.

The Difference Between Stocks and Shares

What Are Shares?

People often get confused by the terms stocks and shares. In some ways, these terms are interchangeable. When we talk about investing in stocks , investors usually refer to owning stocks of different companies. When we speak of “shares,” this generally refers to shares or stocks in a particular company.

What Are the Benefits and Risks of Investing in Stocks?

When you invest in stocks, you become a shareholder and therefore owner of a small part of a company. The advantage is that this allows you to enjoy the full benefits of corporate profits via dividends. But it also means that you accept responsibility for the risks. If the company were to file for insolvency, it would first be the creditors who would get their money back and not the shareholders. This means that you could lose your money invested in stocks.

Let's compare stocks to an investment like a savings account. In a savings account, the bank pays interest at a certain rate on the money in the account. This is called a fixed-income investment because the interest rate remains constant over time. Savings accounts are considered a low-risk investment for your finances because they don't depend on factors like economic downturns that could affect a company's earnings and dividends and change the value of its stock.

However, these fixed-income investments typically offer relatively low yields. Investing in stocks, on the other hand, is a riskier asset class, but tends to offer a relatively higher yield on one's finances (over time). Of course, this remains uncertain and it is known from the past that even broadly diversified stock portfolios can show negative yields over several years

How to Invest in Shares on the Stock Market

If you are inexperienced in finance and the equity market, you are probably wondering how to make an investment in stocks. Generally, you can buy shares of an individual company directly on the stock exchange, or you can choose mutual funds or an exchange-traded fund (equity ) for your portfolio. As a rule, the easiest first step is to register with an online broker. You could use the services of a financial advisor within that firm, or you could invest in stocks based on your own research – a combination of both is also possible.

While you can invest in shares of a single company, it is recommended that you also consider mutual funds and equity ETFs, as these types of investments are more diversified. Both types of funds contain several positions and companies, which reduces your overall risk in the stock portfolio. If one of the companies in the fund underperforms, others could improve or remain stable, minimising losses and potentially maximising gains.

Mutual funds and equity ETFs have many things in common. The main differences, however, are how these funds are managed and how they are bought and sold. A mutual fund is typically actively managed by a fund manager, and that manager buys or sells the fund's assets in hopes of maximising profit for investors. Since these funds are actively managed, investors typically pay much higher fees than when investing in ETFs through the equity market.

Equity ETFs are usually passively managed, which means that you as an investor do not have to bear the costs of an active fund manager. Instead, equity ETFs are designed to track specific market indexes, such as the MSCI World, S&P 500, Dow Jones, Nasdaq Composite, Euro STOXX 50, S&P Asia 50 and others. ETFs can also be bought and sold during a trading day on the stock exchange, just as you would when investing in stocks. With mutual funds, you have to wait until the markets close before you can buy or sell.