Shares For Beginners – Tips & Information For Successful Stock Trading!

If you want to enter the world of stock trading, you first need extensive basic knowledge. This includes understanding the shares, understanding the processes and laws of stock exchange trading and finding out what possibilities there are for stock trading at all.

In the following article we want to give you a little more insight into the world of shares and show you what these securities represent, what types of shares there are and how it is possible to make money with shares as a beginner. You will also receive valuable tips for a successful start in stock market trading.

Shares – classics of financial products

Stocks have a long history and the origins of such securities go back to the end of the 13th century. The oldest known document evidencing shares in a company was issued as early as 1288 and to this day, shares are the most important financial products for trading on stock exchanges worldwide.

What you should know about shares

SHARES, SHAREHOLDERS, STOCK CORPORATION – DEFINITION OF TERMS
Summarized in one sentence, shares are securitized shares of the equity of a company. Holders of these shares are referred to as shareholders, who become co-owners of the company when they purchase the shares.

Many large companies opt for the legal form of a public limited company. A joint stock company is a corporation – this means that the company acquires rights similar to those of a person and can, for example, obtain money more easily via the capital markets.

On the stock exchange, such companies issue shares and the money they receive from the buyers represents the companies’ equity capital.

WHY ARE SHARES CALLED SECURITIES?
Shares are also called securities – this is because shares of companies used to be issued in the form of certificates on which the corresponding nominal value or number of shares was recorded. In the course of time, the owners of shares have moved away from holding their own company shares in the form of individual certificates. For reasons of cost and security, custody of the securities was transferred to banks, which managed the shares in securities accounts.

HOW ARE SHARES MANAGED?
Nowadays, shares are no longer held by banks as actual securities; instead, only the shares are managed. All shares of a holder are securitised in a global or collective certificate, which is usually held by a securities clearing and deposit bank.

NOMINAL VALUE VERSUS MARKET VALUE – WHAT IS THE DIFFERENCE?
When it comes to the value of a share, a distinction is made between the nominal value and the market value.

The nominal value describes a fixed amount of the AG’s share capital attributable to a single share.

The market value, on the other hand, is the result of supply and demand and the security is bought or sold for this price.

Price fixing and the settlement of purchases and sales are usually carried out by stock exchanges. For private investors, the market value of a security is important, because gains or losses can be realized from its changes.

The most important facts about shares at a glance

  • Shares are nothing other than shares in the equity of a listed company
  • A share owner is also referred to as a shareholder
  • The shareholder receives regular dividends from the stock corporation and may also have the right to participate in decisions on the company’s affairs at general meetings
  • Share prices are determined by supply and demand
  • Numerous studies have shown that, in retrospect, no other type of investment can compete with equities in terms of long-term return

What types of shares can be found?

In principle, shares can be divided into ordinary shares and preference shares as well as registered and bearer shares. On the one hand, these categories say something about the rights a share owner receives and on the other hand, it is about the transferability of the securities. But everything in sequence.

ORDINARY SHARES: VOTING RIGHTS FOR SHARE OWNERS
Someone who owns ordinary shares in a company has the right to participate in certain decision-making at general meetings of the relevant public company.

The more shares someone has, the more voting rights he has and the greater his influence. There are two types of general meetings at which a shareholder can exercise his voting rights.

On the one hand, there are general meetings which are usually held once a year. At such meetings, holders of ordinary shares can, for example, elect members of the supervisory board.

On the other hand, there are extraordinary assemblies that are called when certain unforeseen events occur. Within such a framework, shareholders can have a say in capital increases or possible takeovers of another company, among other things.

PREFERENCE SHARES: FOR SECURE AND HIGHER DIVIDENDS
Those who own preference shares have no voting rights, at least in Germany, but shareholders who do own such shares enjoy preferential treatment when it comes to dividend payments. Dividends are annual profit payments to the shareholders.

Holders of ordinary shares also have the right to receive dividend payments, but holders of preference shares are favoured when it comes to distributions. For example, holders of ordinary shares may receive less dividend than holders of preference shares or may receive nothing at all.

If an enterprise is unable to pay regular preference dividends, preference shares also receive voting rights. In the event of bankruptcy of the enterprise, preference shares also retain a greater residual value than ordinary shares.

BEARER SHARES AND REGISTERED SHARES: WHAT ARE THE DIFFERENCES?
These two types of shares are primarily concerned with the transferability of securities. For example, bearer shares are basically transferred “informally” from one owner to the new one, whereas the transfer of registered shares involves greater effort.

Bearer shares are basically bought and sold anonymously, and in the case of registered shares the owner is entered in the register of a joint-stock company. The shareholder is therefore known to the company by name and date of birth and in some cases also by nationality and address.

This is particularly advantageous for joint-stock companies, as it allows them to get an idea of the shareholders and they do not run the risk of being taken over by a large anonymous investor. In Germany, mainly bearer shares are common, whereas in the USA registered shares are the most common form of securities.

How can you earn money with shares?

Shares TouchscreenIn trading on the stock exchange, investors make profits by buying and selling shares. The aim is to buy one or more shares at a low price and sell them again at the highest possible price. Various factors play a role in the price development of shares of a company. These include, for example, the general mood on the stock exchange, the announcement of internal company factors such as quarterly figures, sentiment (the basic mood of investors) or typical seasonal trends on the markets.

The interpretation of share prices is a science in itself and millions of investors spend their daily lives reading trends, plotting support and resistance lines or studying business news.

Many experts believe that over time, equities can generate higher returns than savings books or savings bonds, so it is worth considering this form of investment. But investors can achieve returns not only by purchasing shares. By trading derivative financial products such as CFDs, options or futures, investors can profit from the price developments of the shares – regardless of whether the share price rises or falls.

Where can investors buy shares?

Investors who want to buy shares have various options available. For example, you can go to your local bank and get advice on investment opportunities. The bank employee buys or sells securities on your behalf and charges you the appropriate commission. There is also the option of choosing an online broker. You can also buy shares through such a provider and sell them again.

What is a stock analysis and how is it done?

A trader cannot avoid stock analysis. Anyone who aims to invest profitably in shares and wants to take the helm himself will have to deal with the factors influencing price developments and/or base his own trading decisions on the analysis of price developments.

FUNDAMENTAL ANALYSIS
This brings us to the two basic approaches to stock valuation. On the one hand, there is the so-called fundamental analysis. With this approach, investors assess the expected price development on the basis of macroeconomic factors and company- and industry-specific information. The idea behind the principle of fundamental analysis is that what has already proven its worth will also prove its worth in the future.

TECHNICAL ANALYSIS
This contrasts with technical analysis, which is based on the idea that capital markets are not efficient. Here, investors make a graphical assessment of price developments according to the motto: certain constellations result in corresponding market movements. In this way, technical analysis identifies trends, defines supports and resistances and looks for meaningful price formations. Critics of this approach criticize the lack of attention to objectively measurable data, but millions of investors have already proven that technical analysis can work.

Stock analysis using key figures

Among the most important points at which shares and thus companies can be valued are certain key figures that can be found with every share. These include the price-earnings ratio, for example. The P/E ratio says something about the ratio of the profit to the price of the security. Basically, the P/E ratio can also be interpreted as the number of years required to finance the purchase of a share.

Other key figures that say something about a stock include

  • EKQ This abbreviation stands for “equity ratio” and this value says something about how solid a company is in economic and financial terms. The equity ratio shows the share of equity in total capital. The higher the EKQ value, the more solid the company’s financial position is and therefore the higher its credit rating.
  • KBV This is the so-called “price/book value ratio”. Such a ratio shows the market value of equity in relation to the value of the capital according to the balance sheet. The higher the price/book value ratio, the better the estimates of the economic future of the stock corporation.
  • KCV Behind this abbreviation is the term “price-cash flow ratio”. A look at this value is particularly appropriate for stock corporations that are currently not making any profits. The KCV stands for the ratio of the share price to the expected inflow of funds.
  • KUV This is the “price-turnover ratio”. This ratio allows the market value of the company to be determined on the basis of sales. The current stock market price is divided by the sales per share.

Stock analysis using key figures

Among the most important points at which shares and thus companies can be valued are certain key figures that can be found with every share. These include the price-earnings ratio, for example. The P/E ratio says something about the ratio of the profit to the price of the security. Basically, the P/E ratio can also be interpreted as the number of years required to finance the purchase of a share.

Other key figures that say something about a stock include

  • EKQ This abbreviation stands for “equity ratio” and this value says something about how solid a company is in economic and financial terms. The equity ratio shows the share of equity in total capital. The higher the EKQ value, the more solid the company’s financial position is and therefore the higher its credit rating.
  • KBV This is the so-called “price/book value ratio”. Such a ratio shows the market value of equity in relation to the value of the capital according to the balance sheet. The higher the price/book value ratio, the better the estimates of the economic future of the stock corporation.
  • KCV Behind this abbreviation is the term “price-cash flow ratio”. A look at this value is particularly appropriate for stock corporations that are currently not making any profits. The KCV stands for the ratio of the share price to the expected inflow of funds.
  • KUV This is the “price-turnover ratio”. This ratio allows the market value of the company to be determined on the basis of sales. The current stock market price is divided by the sales per share.

Are shares suitable for you as an investor?

Even though shares can be invested for a short time, the potential of this form of investment only becomes apparent over the course of several years. If you choose cleverly and do not touch your securities for several years, you can expect returns that no savings books or fixed-term deposits can match.

Added to this are the annual dividend payments that investors would miss if they held a share for only a few weeks. If you want to achieve high returns in a short time, it is best to look for other financial instruments such as futures or CFDs.

Furthermore, it also depends on the financial circumstances of the investor and how long he can spare the invested money. You should also only trade with money that you can also spare in case of a total loss.

If you do not have much money left over for trading or want to start with smaller stakes, then derivative financial products such as CFDs are also recommended. Here you also speculate on the price development of shares, but do not deposit the full price of the security but only a security deposit, the so-called margin.

Which shares are you an investor?

Every person is different and also when trading, everyone has their own approach and makes individual trading decisions. However, three different types of investors or risk types can be roughly identified among the traders.

A – CONSERVATIVE INVESTORS
Such a trader places security above yield. He is always concerned to keep the investment risk as low as possible and does not aim for a higher return. Conservative investors want to deal as little as possible with their investments and in many cases rely on the advice of their own bank advisor. If the investor invests in shares, he or she will opt for established, large stocks such as the Dax.

B – GROWTH-ORIENTED INVESTORS
These market players are primarily looking for good earnings prospects when selecting their stocks. To this end, they also accept greater fluctuations in value, but always endeavour to keep the risks taken manageable. Such investors spend several hours a week observing and analysing the markets, opting primarily for medium-sized stocks such as the MDax.

C – RISK-ORIENTED INVESTORS
This type of investor is primarily looking for particularly high returns in the shortest possible time. If necessary it takes very large risks in purchase and invests gladly also in speculative plant forms. Such a trader spends many hours of the week in front of the computer to observe markets, to lurk for trading opportunities and to make numerous trades.

So ask yourself which trading method suits you best. However, if you still can’t answer this question clearly, then you should first try a little and test each of the variations. You don’t even have to invest your money – a sample portfolio can be a valuable help, especially for stock beginners.

Trade risk-free with a model portfolio

A beginner will initially find it difficult to understand what is happening on the trading floor. And many a person has for this reason preferred to keep their hands off stock trading. But it is not absolutely necessary to use your own hard-earned money to get to know stock trading.

Many online brokers offer virtual share depots and your house bank certainly also has an online sample depot to offer. With this account you can simulate the purchases and sales of shares, test different investment strategies and observe the development of your securities. In this way, beginners get a “look behind the scenes” and get to know stock trading without having to expose your capital to risk.

The use of the sample portfolios is free of charge with most providers – however, there are differences in the duration of use. While one sample portfolio is available for an unlimited time, another demo portfolio is only available for a few days. There are also some significant differences in the scope of services of the sample depot. It is therefore worth comparing the various offers, because a sample portfolio can also be of great service to an experienced investor – for example, if he wants to try out and optimise a new trading strategy.

How to find the right stock portfolio

As with any search for providers, you should take a slow approach to choosing a portfolio of shares. First consider where you want to buy your shares. Should it be the house bank or better an online broker? Get all the conditions for the stock portfolio from your house bank and compare it with the offers on the net.

There are a few points that play a role in choosing a custody account provider and if you use the following criteria, you can be sure to find a good custody account that you will be satisfied with for a long time to come.

FEES
Transaction costs are incurred for every purchase and sale of securities. The amount of these fees depends primarily on the conditions of the providers and there can be whole worlds between the offers of two brokers. In some cases, annual fees are also payable for the management of the securities account. This is an exception, but it can still be found. There are a number of other fees that investors may have to pay, and as a rule, detailed lists of prices and services can be found with each provider.

MINIMUM DEPOSIT
This point may not be important for large investors, but someone who wants to invest on a smaller scale should also find out what the terms are in this regard.

REAL TIME PRICES AND TRADING APPLICATION
Even though free real-time quotes are a matter of course for most custodian providers, some banks or brokers charge fees for quote packages. If an in-house trading platform is offered, it should be powerful, allow for professional price analysis and offer the possibility of using or additions such as limit or stop.

CUSTOMER SERVICE
This point should not be underestimated either, because anyone who leaves his money with a custodian provider should also be able to expect an appropriate service. This includes competent employees, a supply of current business news and, in the best case, stock recommendations from the in-house experts.

Five tips for share beginners

  1. Inform yourself – Before entering the retail business, you should inform yourself in detail about promising companies and industries. The more information you have at your disposal, the more well-founded your investment decision will be and the more relaxed you will be in dealing with price fluctuations.
  2. Set return targets – Be aware of what return you want to achieve in what period of time and also stick to your own targets. Once the return target is reached, don’t get greedy and realize your profits.
  3. Spread the risk – Don’t just trade one type of stock, but buy several blocks of shares. If an investment is not profitable, the losses can be recovered by another, successful investment.
  4. Decide for yourself – Do not rely solely on advice. Stock recommendations can be quite useful and your bank’s investment advisor will certainly have good tips for your investment, but you should never rely solely on other people’s opinions. Obtain information on the recommended shares on your own initiative and thus be sure that you are fully behind your decision.
  5. Depot care is important – Once you have put together your stock portfolio, you should always keep an eye on the securities, even with long-term investments. Adjust stop-loss rates, regularly analyse prices and follow current developments in the world of finance.

This is a simple way to avoid investment errors

In this article we will come to the mistakes that most investors have already made in one form or another and which we would like to spare you. We present the 5 most common investment errors and show you how you can avoid them.

SHORT-TERM THINKING
Many trading newcomers make the mistake of considering too short a period of time in the past when analyzing prices. If you want to know about the future price development of a share, you should not only look at the prices of the past three months, but think and analyse in a broader context.

LET EMOTIONS INFLUENCE TRADING DECISIONS
Feelings like fear and greed have no place in stock trading. If you do not make your investment according to purely rational aspects, you will not be successful in stock trading in the long run.

OVERESTIMATE YOUR OWN ABILITIES
A successful investment says nothing about the skill of a trader. However, many traders enter the stock market ill-prepared and rely on their alleged skill for their investments.

MISINTERPRETING PAST EVENTS
Even though the analysis of historical price movements is an important aspect, even professionals are sometimes off track with their assessments of past market movements and thus also with the forecast they give for the future.

FREQUENT REGROUPING
Many stock beginners make the mistake of buying and selling stocks too often at the beginning. This does not benefit the long-term return prospects, but rather the custodian provider, who charges fees for each transaction.


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