How stocks work? Stock for beginners

In short, here are the most important things stock for beginners

  • A security is a share. With it, you can join a public limited company as a co-owner (AG).
  • With the share, you get some rights, like a share of the company’s profits (called a “dividend”) and the chance to take part in the annual main meeting.
  • If you buy a stock as an investment, you want the company to do well so that your share goes up in value.
  • Stocks have risks. This guide tells you which ones and how to cut them down.

Here’s how to do it.

  • Short-term changes in stock prices can be big, so you should only invest money you won’t need for the next ten to fifteen years.
  • In any case, you should start with the right account for securities.

What image comes to mind when you hear something from a company’s shareholders or owners? Older men with suit and chauffeur? They must also be out there. But becoming a shareholder has never been easier than it is now. In recent years, there have been more people who own shares.
You only need a few USD and an online deposit to do this. You will learn some basics in this guide: How stocks work, the best way to use them as a long-term investment, and the risks that come with this type of asset.

What do stocks mean?

Stock for beginners – A stock is a right to take part in a business, specifically a public limited company. If you own a share of a company, you are also a co-owner of that company. Among other things, he may have a say in how the main collection is run. The people with the most power are the so-called “large shareholders,” who own about 10% or even most of a public limited company. Apple, Daimler, and Siemens, on the other hand, have a lot of small shareholders as well. Most of these investments are in stocks. If the business does well, they do too, because the value of their shares goes up. The goal is to sell the stock later for more than what was paid for it.

The so-called dividend not only makes the share worth more, but it also gives investors more money. When a company makes money, it usually gives some of it back to the people who own shares. A dividend is the name for this kind of payment. Shareholders decide if there will be a dividend and how much it will be. Usually, shareholders don’t get all of a company’s profits. Part of the money goes to building up reserves or putting money into projects for the future. In our guide to dividends, you can learn more about how dividends are paid out.

That’s the difference between nominal value and price value.

There is a nominal value and a price value for each share. The nominal value shows how much of the company’s share capital the owner of a share gets to own. The price value, on the other hand, is more important to investors. The price (or price) of a share comes into play here. A company doesn’t keep giving out new shares all the time. Existing shareholders would not like this because it would make their share of the company smaller. A so-called capital increase can only happen if most people agree to it. This means that if the number of shares, or company shares, stays the same but the company’s value goes up because it does well in business, the value of each share also goes up. Then you can sell them later for more money. And the value of this price is what it is called.

The stock exchange is one place where the price of a company changes every second.

It gives everyone the same rules so that shares can be sold from one person to another. So the stock exchange is just a place where people buy and sell things. There, the course is set by what people are willing to pay. The stock market value of a company is found by multiplying the price of a share by the number of shares in circulation. This number is also called the market cap. Apple, for example, is the most valuable stock company in the world right now and has a market value of about 1.9 trillion euros. The market value of the German travel company TUI is almost 3 billion euros (as of January 2023).

But not every city is traded on the stock exchange. With negotiation skills, you can only join a non-listed company as an investor (and you should usually flash off), but you can do this with a few mouse clicks on the stock exchange. In this guide, we talk about how the stocks work. In our guides on how to buy shares and make a savings plan, we show you how to use shares to build up your own investment.

The most important stock terms, broken down

Stock for beginners – There are a few terms that keep coming up when you talk about stocks. We’ll tell you what they mean in this part.

There are many kinds of shares.

Accelerees can give their shares to registered shareholders or to anyone who wants to buy them. In the case of a “registered share,” a “share register” keeps track of who owns how many shares of the company and how many shares they own. So, the shareholders can be reached directly by the public limited company. Only people whose names are in the share register can attend the main meeting and vote. If you buy a share, you must be added to the share register, and the name of the previous owner must be taken off. Most of the time, your custodian bank will take care of this for you. But some places charge extra for this. In these situations, you can also choose not to sign up if you don’t want to go to the main meeting. Then, you can still trade the stock and get the dividend.

For bearer shares, there is no record of who owns them. The person who owns the share automatically has the right to take part in the main collection. This is bad for the company because it doesn’t have a clear picture of how the investors are set up. But as a shareholder, this is good because it means you can attend the main meeting without having to sign up in a registry.
Some AGs give out two kinds of shares: ordinary shares and preference shares. The people who own the preferred shares get some benefits. A higher dividend is one example. The owners of preferential shares don’t get to vote on the company’s main group, which is another drawback. Volkswagen and Metro are well-known examples of this model. By the way, the letter “Vz.” in the name of a share usually tells you that it is a preferred share.

Main collection, initial public offering, and capital increase

There are always important things that happen in the life of a shareholder. Every year, the main meeting takes place. If you own a registered share and are listed in the share register, the company will send you an invitation to the main meeting. In the case of an owner share, on the other hand, your custodian bank will give it to you. Some deposit providers charge a fee, so pay attention to the price list if you order a ticket after the fact.

The company’s policies will then be decided at the main meeting, and the Supervisory Board will be chosen. The shareholders there also decide how much the dividend will be. For each share you own, you get one vote in the vote. If you own 1,000 shares, for instance, you have 999 more votes than someone who only owns one share. So, small shareholders don’t have much of an effect on the main collection. The major shareholders are in charge of making decisions there.
If a company wants to list its shares on the stock exchange for the first time, there will be an IPO or IPO before the stock exchange starts trading. First Public Offering is what IPO stands for. Investors are given the shares if they meet certain requirements.

In September 2022, the car company Porsche had the last big IPO in Germany. Porsche also had an IPO before trading on the stock exchange began. People who wanted to buy shares of the company could do so through certain custodian providers. The prices ranged from 76.50 euros to 82.50 euros. Since there were more people interested than there were shares available, the share was finally sold at the highest price, which was 82.50 euros. On November 29 The stock exchange opened for business in September. Since then, everyone has had their own account where they can buy Porsche shares.

The equity of a company can also go up if it decides to buy more shares and spend that money to make more money. It’s called an increase in capital. It must be decided at the main meeting by a large number of shareholders. Most of the time, shareholders get a right to buy more shares. Because the capital has gone up, there are now more shares in the company and each share is worth less. Investors can then use the subscription right to buy new shares and keep the same percentage of the company. You can sell the subscription right on the stock exchange if you don’t use it. So, he is given money to make up for the shares he lost.

Split stock

Even when a company splits its shares, the number of shares goes up. But without adding to the capital. When the price of a share is very high, the stock split is used. Because, as the name says, the shares that are already there are shared. The goal is to help investors get started more easily. To buy a share of the company, you don’t have to come up with a lot of money.
In August 2022, Tesla, a company that makes electric cars, did this. It was three to one. This means that each investor’s account was updated with two more new shares for every one old share. All three shares were worth the same amount as before. For example, the price of a share was about $890 before the split. After the split, it was only a third of the total, or about $296.

By the way, there are two ways to invest with a small amount of money even when share prices are high. With a savings plan, your custodian will sell you fractions of a share or fund for a fixed price, usually about 50 euros. If the share costs 200 euros at the time the savings plan is released, you would get 0.25 share fractions. The broker Trade Republic also lets people buy fractional shares on purpose.

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