Securities trading on stock exchanges: features, profitability and interesting facts

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

Securities are a very reliable investment, which is at the same time a profitable way to increase capital. But in practice, there are quite a few people who more or less understand what such a trading process is.

General information

The stock market specializes in transactions with commodity and monetary securities. These are stocks, checks, bonds, bills and so on. It should not be confused with the foreign exchange market, because the processes of buying and selling state treasury signs of different countries are carried out on it. In fact, the stock market is a whole complex of mechanisms that allow those who wish to make transactions with securities and receive income from them. The first organizers of securities trading appeared centuries ago. Since then, this direction has been continuously developed.

What's on the market?

The following securities are used as the main commodity:

1. Promotions. They are equity securities of specific companies. Its presence gives the right to a part of the company's income (in case of prosperity) or property in case of liquidation. Shares are high risk financial instruments. This is offset by the fact that trading them allows you to get high profits. It should be noted that now they are trading not so much in stocks as in the exchange rate for them.
2. Bonds. This is the name of securities that can be sold at face value with the addition of interest. In fact, this toolkit is used by companies to borrow money from investors. In this case, you will have to return with interest. This tool was invented in order to remove the intermediary represented by banks between the borrower and the owner of the funds. Bonds are not very profitable, but they are also an order of magnitude less risky than stocks.
3. Promissory notes. It is not the most used security these days. But it is an obligation to repay a debt, which is issued on the security of property.
4. Checks. They have much in common with bills of exchange. This security serves to certify the right of the holder to receive a certain amount from the bank.
5. Bills of lading. This is a security issued by cargo carriers to its owner and gives the right to receive it.
6. Bank certificates. This is a deposit certificate with the obligation to issue it together with interest after a certain period.

About diversity

The organization of trading in the securities market in general isan extremely complex structure that has many characteristics. Let's look at the main types:

1. According to the stage of treatment. There are primary and secondary stock markets. In the first case, it is supposed to issue securities that come into circulation. On the secondary, trading is carried out with previously entered financial instruments.
2. By type of regulation. Allocate a non-organized market. The peculiarity of the first is that it is based on private agreements between the parties to the transaction. An organized market is distinguished by the fact that it works according to clear, written and fixed rules. It should be noted that the first option is almost never found.

Other differences

May also stand out:

1. According to the timing of the execution of transactions. Distinguish cash and urgent type. In the first case, the transaction is executed immediately. In the second, it can be stretched out for a certain period, such as several weeks or even months.
2. According to the way of trading. In this case, a distinction is made between traditional and computerized. The first option provides for work in the same way as many years ago. That is, both sides meet directly. Registration of computerized transactions does not require personal presence. All transactions are carried out using the global network.
3. At the place of conclusion of transactions. In this case, the out-of-stock market is distinguished. In the first case, special structures are dispensed with. The second option involves working on the exchange floor.

For beginners, such a variety of classifications can be confusing. But in order to understandorganization of securities trading, it is necessary to understand all the mechanisms and their relationships.

A little about the process itself

We will not go into details, but consider the simplest and most well-known option as a sample. Securities are traded on stock exchanges. They have the status of specialized platforms where you can sell and buy financial assets. It should be noted that only legal entities can deal with this case. But this does not mean that the path is closed to ordinary people. Anyone can take part in the operation. But for this he needs an intermediary, who is called a broker. He will make transactions on behalf of a specialized company. A person receives income by deducting a certain percentage to a representative for participation. For successful activity, it is necessary to have at least minimal knowledge in economics and understand the mechanism and specifics of work. Let's get on with it.

Important elements of the mechanism of securities trading activities

The most minimal necessary basis is:

1. Tables of quotes. They bring together information on various types of shares. Thus, the minimum and maximum value of the value, the turnover per day, the values at the time of opening and closing trades are indicated.
2. Charts. Used to visually express the data that is available in the tables. Their convenience lies in the fact that you can see information for a certain period of time.
3. Stockindexes. Used to indicate the direction of movement - falling or rising. True, not one type of stock, but the entire market as a whole. It should be noted that there are a lot of indices (about two and a half thousand). But you don't need to know them all.
4. Technical and fundamental analysis. Don't be afraid of these words. They mean the basics of financial mathematics, which will allow you to calculate and analyze the profitability of a transaction.
5. Professional terminology. Without her knowledge and understanding, it is difficult to count on making a profit. And it is advisable in this case not to be limited to one reading of literature, but to get a specialized financial education or sign up for thematic courses with sensible mentors.

Get income

All types of trading in securities involve transactions with goods. This must always be remembered. And in this case, the basic principle of doing business is always the same: buy as cheaply as possible, and sell at the maximum markup. Since the cost is constantly changing, it is important to adequately determine the best moments for these operations. Although it should be noted that sell / buy is not the only way to generate income. In the case of securities, the benefit can be obtained simply by owning them. For example, in the form of realization of debt or interest payments, dividends.

Income specifics

To a large extent, the resulting value depends on the demand on the market (liquidity) and the type of securities. Here are the same shares. They are considered the mostrisky. But at the same time, by acquiring them, you can expect to receive significant income. Working with them, a person can both earn huge profits and lose his savings. Bills, savings certificates and bonds cannot boast of large returns. But the risk of losing money here is very small. When assessing future income, liquidity plays an important role. In fact, this is the opportunity to sell securities at a cost as close as possible to market values at any time.

The specifics of working with stocks

Although this is a rather risky direction, but also quite alluring, it deserves attention. What should a newbie pay attention to? In this case, you can advise highly liquid stocks of large companies (they are often called blue chips). This is a good choice for those who are taking their first steps. After all, the fluctuations in this case are insignificant, and the cost is high and prone to increase. Low-liquid stocks that are not in demand are a riskier instrument. More experienced players turn to him, which can turn hesitation to their advantage. True, for this you need to use a fairly significant amount in order to get a tangible gain.

Action strategy

Organized trading in securities implies a certain approach of actions that allow you to achieve the desired goal - to receive the maximum possible income. In the general case, the policy is recognized as the most promisingdiversification. It assumes a competent and balanced distribution of assets. Thus, funds are directed to low and highly liquid assets, and to risky and stable financial instruments. It is difficult to get a complete picture of this by reading only the literature - for this you have to learn a lot in practice. And it is highly desirable under the guidance of an experienced and successful broker. In general, when choosing a strategy, there are a lot of different options. Which of them should be acted on by everyone decides for himself.

Why is it desirable to act through the exchange?

Financial trading in securities can be carried out in various conditions. But it is better to start doing business not on the stock exchange, even taking into account the fact that you have to pay a certain percentage for this. Why exactly? The fact is that before the placement of securities in this case, they must undergo a listing procedure, that is, a preliminary check. In addition, by participating in exchange processes, you can catch the process of initial placement. And this in some cases can turn into a significant (and possibly even a multiple increase in assets). Another important fact is the significantly reduced risk of meeting scammers.

Specifics of work on the stock exchange

First of all, you should understand the terminology in order to understand the essence of the ongoing processes. For example, trading on a stock exchange requires a person to distinguish between a limit order and a purchase/sale order. So, in the first case, the client allows the broker to set the price limit on his own. Whereas the second option involves focusing on market indicators. When working, the influence of priorities should also be taken into account. Both price and time can be used as key time. In the first case, it is understood that the orders of customers who are willing to pay more will be processed first of all. Whereas time priority means that applications are given priority as they come in.

What are the risks to be aware of?

Even if securities are traded on stock exchanges, there are always certain dangers in carrying out activities that can lead to financial losses. This should not be forgotten. Here are the most popular causes of loss:

1. Price risks. This refers to the likelihood of a decrease or even loss of the entire amount of money that was invested in securities.
2. Risk of liquidity decrease. This refers to a problem that occurs as a result of a negative market situation, which does not allow closing a previously opened position.
3. Risk of default. It occurs in cases of insolvency, bankruptcy or misconduct by the issuer/other trading participants.
4. Currency risk. Includes adverse changes in the exchange rate of currencies of different countries.
5. Operational risks. Relevant for legal entities if the funds of several clients are on the same account, as well as when moving the client's finances.
6. Risks in the evening. They arise when the tradesecurities is carried out after 18 hours. In this case, transactions are carried out without the support of a broker. In this case, the entire risk depends solely on the client.

The above list is not limited to. It is not exhaustive, nor does it encourage clients to stop trading. The hovered list only displays those possible problems that you may encounter when doing business on the trading floors.

Conclusion

When making transactions, it is desirable to maintain a balance between profitability and liquidity, correctly distributing available funds. Then the chances that securities trading will be successful increases. In this case, the formed investment portfolio allows you to create a safety net and not risk all the funds, so that they are not lost even if they are miscalculated.