Stock market for beginners: concept, definition, special courses, trading instructions and rules for beginners

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The stock market is an opportunity to earn money without leaving home both on a permanent basis and use it as a part-time job. However, what is it, what is the difference from the currency one and what does a novice stock market trader need to know?

Investments and securities

First of all, it is worth understanding the concepts.

A security is a certain commodity that fixes the holder's right to own a part of a debt obligation or tangible property. Based on this, securities are divided into two large classes: equity and debt. There is another type called "derivatives", but by and large they are not securities in their classical concept. Nevertheless, derivatives are essential and affect the economic life of society no less than securities.

The subspecies of debt securities includes bills and bonds for which the holder will receive from any individual or legal entity a sum of money inset time. On the other hand, the obligation of the other party to pay a certain amount within a specified period is fixed in a debt security.

Equity securities are stocks. There are many subspecies of shares, but they all have the same essence: the share fixes the ownership of the owner of the securities to any part of the property in this company or enterprise.

Both types of securities can be sold and bought, that is, change holders. Thus, they become a commodity, and any commodity in the process of sale must be valued, so each security has its own value, expressed in money. Their main difference from ordinary goods is the ability to bring additional money. The process of investing money in securities is called investing, and the holder of securities is called an investor.

Investments

Stock market trading for beginners is not possible without knowing the types of investments. They are divided into two types: portfolio and direct. The direct method of investment implies the purchase of a share of an existing or newly created company with further direct work on the production of services and goods. If an investor invests in the company's shares, but at the same time expects only a share in the profits and does not take a direct part in the management process and work, this is, by definition, a portfolio investment. His rights to a certain share of the company are fixed in the form of a certain number of shares that are in his ownership. Portfolio investors buy shares of companies expecting dividends.on the profit that remains with the company after deduction of taxes, expenses, deduction of planned and made investments. Dividends are distributed among the holders of securities according to the share of ownership. An investment portfolio is a collection of different securities.

Shares

It is also necessary to consider investment fund units that are related to equity securities, but still somewhat different from them.

Investment funds are companies that are not engaged in real business (for example, construction or production of certain goods). Their purpose is to provide the infrastructure of the stock market. Investment funds facilitate access to the market for the largest possible number of investors. The fund does not have personnel, as in a conventional enterprise, but it has a management company that diversifies the fund's investments and buys and sells shares to the public. An investor who invests money in a fund unit, in fact, takes possession of the corresponding part of the fund's investment portfolio, and entrusts its management to other, more qualified people. This is very similar to owning shares in a company, and shares can be bought or sold just like ordinary shares. The share also en titles the holder to an appropriate share of the fund's assets.

Essence and meaning

For beginners, the stock market can seem too complicated, so before you start trading, you need to know the basics of what is happeningprocesses and features of different types of trade.

The entire stock market is divided into primary and secondary. Secondary is further divided into over-the-counter and exchange (organized).

The primary market is the market where various securities are initially placed. It covers the entire first issue of each security and part of subsequent new issues of old securities. In the primary market, companies profit from the placement of bonds and stocks, here they finance their own production process. Placement can be closed or open.

Accommodation types

In a private placement, securities are available for purchase only to a predetermined circle of investors at a pre-agreed price.

At open (public offering) securities can be purchased by any investor. This type of placement can only be used by enterprises and companies in the form of open joint stock companies (JSC). An enterprise can place new issues of shares as much as it likes, but only in a closed form. The first public offering for any enterprise is available only once throughout its existence. This usually precedes plans to list the company's securities on the exchange market.

Secondary market

The task of the secondary securities market is to change their owners. At the same time, issuers (companies or enterprises that issued shares) in the secondary market do not receive any profit and financing. In the stock market, the exchange market occupies a central place, on its platformsthe largest trading turnovers take place, but the over-the-counter market is of secondary importance. The over-the-counter market often trades securities that failed to get listed on the stock exchange. Often these are low-liquid papers of regional or new enterprises that are not in high demand.

On the OTC market, all transactions are made without the participation of a broker, directly between the seller and the buyer, which significantly increases the risk of non-payment or non-delivery of securities that are not listed on the exchange. Due to this, transaction costs increase, and liquidity decreases even more. Thus, the exchange is the most convenient place for various operations with securities. For obvious reasons, this part of the stock market is not the best place for beginner investors.

Only members of the exchange who are licensed participants in the stock market have direct access to the exchange: dealers, brokers, banks with the appropriate licenses (dealer or broker). The investor does not have direct access to the stock exchange, and can only get access through an intermediary - a broker. The broker maintains investment accounts of clients, gives them the opportunity to participate in the auction, charging a commission for this. Also, the broker is responsible to the exchange for the illegal actions of his client.

Exchanges

How to start trading in the stock market? First of all, you need to choose a trading platform. In this section of the article, using the example of three specific sites, the general principle of the trading device and somedifferences.

As the stock market develops, the differences between trading floors and exchanges become less significant. Consider the world's oldest trading platform, the New York Stock Exchange (www.nyse.com). On this exchange, trading is supported by specialists. A specialist is a bidder who monitors the course of trading in a particular security. One specialist is assigned to each security on this platform, however, he can be responsible for several securities.

The main responsibility of this person is to ensure the liquidity of the security. This is done by maintaining bilateral quotes, as well as executing purchase and sale transactions according to these quotes. On the New York Stock Exchange, each specialist needs to maintain a spread (the difference between buying and selling) at a certain level. Let's continue to consider the features of trading in the US stock market for beginners. How do experts maintain the liquidity of securities? The fact is that if there are no transactions for the sale of a security, the specialist puts up and holds an offer for sale. If there are no deals to buy, an offer to buy is placed and held. Participants in trading on an exchange organized according to a similar principle see a small part of the whole picture. These are the highest buy prices, lowest sell prices and lot sizes. The available information is the price and volume of the last executed trades.

NASDAQ

Now consider another market, the NASDAQ. This is truecalled the dealer market. There is no specific specialist "leading" a certain security, but there are dealers and market makers. Their duty is also to maintain bilateral quotes. They put up quotes for sale or purchase, and when another bidder puts forward an offer for a transaction under these conditions, the market maker is obliged to make it. Therefore, in the NASDAQ system, not only all offers for securities (and not only the "extreme" prices for buying and selling), but also the entire volume of the market, that is, all available offers for selling and buying, are always visible.

With low trading volumes and trading in low-liquid securities, the dealer market is the best solution for getting started in the stock market for beginners. Moreover, the bidder also sees the name of the dealer who made a specific offer. Transactions can be concluded both by phone and in an electronic system. Since members of the NASD can participate in the trades, the broker exposes client trades on its own behalf.

RTS

And our course for beginners in the stock market continues with a description of the Russian dealer market, an analogue of NASDAQ. This is the PTC exchange (www.rts.ru). Initially, it was positioned as a trading system. Today, the RTS is a dynamically developing platform for the stock market. Beginners need to know that trading is carried out in the main "section" of the RTS, which has been preserved since its inception, but there are other sites.

The most liquid securities of corporateissuers.

The FORTS derivatives market section trades paper options and futures, leading Russian issuers and stock indices participate.

There is also a joint project organized by the St. Petersburg Stock Exchange and the RTS, the purpose of which is trading in RAO Gazprom shares.

"Old" section

Starting learning to trade in the stock market from this part of the RTS exchange is not a good idea. In the main, "old" section, bidders put up quotes and make deals on shares with a choice of the settlement currency and the method of fulfilling these obligations. Securities are usually delivered to the buyer three days after the transaction, although in some cases the registration of a new owner of the securities may be delayed for two or more weeks. The main players in this segment are market makers and dealers, whose main clients are large Western funds and investors. The main trading currency is the US dollar. This site is not available for online trading, it can be very inconvenient for beginners.

Books

The stock market is hard enough for beginners to master, and it's hard enough to cover all the information in an article, so we offer six excellent books to help a beginner understand the intricacies of stock trading.

• B. Ilyin, V. Titov, "Exchange at your fingertips".
• John Murphy, "Technical analysis of financial markets".
• A. Elder,"Trading with Dr. Elder. Encyclopedia of stock trading". This book is practically the bible of trading, and is perfect as a beginner's course in the stock market.
• A. Gerchik, T. Lukashevich, "The Stock Grail or the Adventures of the Trader Pinocchio".
• K. Face, "The Way of the Turtles".
• D. Lundell, "The Art of War for Traders and Investors".