What are stocks?
When a company needs to increase liquidity, it can take out a loan from a bank. Another option is the issue of shares. You can invest your money in a specific company by buying these (shares) shares. When a company issues new stocks, it receives money that has been invested by investors. The buyers of shares are called shareholders. In return for investments, they become co-owners of this company. A company's profits and losses are often reflected in stocks. A share is in fact nothing more than (negotiable) proof of ownership of a portion of the company's capital.
a share is a small part of a company that you may own
What determines the price and value of shares?
The share price is based on the last transaction. A transaction can take place when the buyer and seller agree on the price. As with many other products, price is often influenced by a balance between supply and demand. This means that the more people want to buy a stock, the higher the price will be. The (profit) expectations of the company often play a key role in this. Is the projected profit high? In that case, the demand is likely to increase. The share price may vary on each trading day.
In theory, profits have an impact on investors' valuation of a company, but there are other indicators that investors use to predict the price of a stock. Remember that investors' moods, attitudes and expectations ultimately affect stock prices. Each investor, just like you, will take into account the expected future results of the company. Based on this, you can determine the value of the stock and determine whether the current price is too high, too low or just right. For information on choosing your first action, check out this video.
When are stocks profitable?
You can earn money from stocks in two ways. First, by trading stocks. The price changes due to the above-mentioned: supply and demand. If you sell a stock for a higher price than you bought, you obviously make a profit. This also works the other way around. If you sell your share for less than the purchase price, you will lose money.
The second way to record profit on shares is through dividends. Companies that issue shares may choose to distribute their profits in the form of a dividend. When you receive dividends, they can be in the form of cash or shares. If the company pays dividends, it decides the percentage that will be paid.
Where to buy stocks
After placing an order with DEGIRO to buy or sell shares, the order goes to the stock exchange. This is where stocks and other financial products are traded. This is where supply and demand come into effect. Whether your order is executed or not depends on the orders of other traders on the exchange. Some stocks may be traded on multiple exchanges. For example, Marks & Spencer can be found on both the London Stock Exchange (LSE) and Börse Frankfurt. To learn how to buy or sell stocks and learn more about online stock trading via DEGIRO, watch this video.
investors use brokers to operate on stock exchanges
Action types
Stocks and shares are synonyms and may be used interchangeably. The two main types of stock are common stocks and preference stocks.
Ordinary shares
Common stocks are more common than preferred stocks for a simple reason - most stocks are issued in this form. A big difference between ordinary and preference shares concerns the voting right. Ordinary shareholders are usually given the right to vote on company matters, such as the election of board members. Therefore, these shareholders have an influence on the rules and management of the company. Typically, when you buy one share, you get one vote.
Preference shares
Unlike ordinary shares, preference shareholders do not receive voting rights. However, preferential stocks still have their advantages. Preference investors are usually guaranteed a fixed dividend for eternity, similar to a bond. Ordinary shareholders can also be paid dividends, but these are usually volatile and are never guaranteed. In addition, preference shareholders face ordinary shareholders to redeem their shares in the event of liquidation of the company. Therefore, they have a better chance of getting back at least some of their money than ordinary shareholders.
What is an equity fund?
You can buy stocks yourself, but you can also buy stocks through the fund. It is an investment fund that invests in several companies at the same time. In this way, the portfolio is automatically diversified and the investment risk is spread. This video from our Investor Academy will help explain more about risk spreading. For you as a private investor, an advantage to investing in a fund is that the fund manager maintains the fund. On the other hand, the downside may be the relatively high costs you pay for the work done by the fund manager. ETFs are similar <a href="
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Risk related to investing in stocks
Acquiring shares may be profitable, but it is not without risk. We believe it is important to be aware of the risks involved in investing. For example, in the case of stocks, the risk of price movements is important. Stocks you buy today may be worthless tomorrow. In addition to the price risk, there is always a risk that the company will go bankrupt. There are a number of factors to consider before investing. This helps you determine what risks you want to take and which products are right for you. It is also not advisable to invest money that you may need in the short term, or to take positions that may cause financial difficulties. You don't know what to invest in? This video from our Investor Academy can help you!
Investing in stocks: our tips
Don't just buy one or more shares. Spread your risk by investing in different types of companies or sectors.
Don't invest money that you may need in the short term. When buying stocks, think about the long term.
Choose the companies from which you want to knowingly buy stocks. Research and learn about the company and the market in which it operates.
Fun Fact:
The first share in the world was issued in the Netherlands by the Dutch company East India. After its first issue in 1606, over 6 million florins were collected, which was a huge sum.
The information in this article is not provided for advisory purposes, nor is it intended to recommend any investment. Investing comes with risk. You can lose (part of) your deposit. We advise you to invest only in financial products tailored to your knowledge and experience.
