What are company shares and why are they needed?

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

Today, in news releases on television, you can often see information of an economic nature, which also concerns securities, most often on stocks or indices of certain exchanges. Let's try to figure out what company shares are, why they are needed, where you can buy and sell them, and what you can get from all this in material terms.

Stock concept

As already noted, a share is a security that gives its owner the right to a certain share in the company's business. At the same time, you need to understand that it is possible to influence the activities of a particular company only if you own a large block of shares. Securities, in turn, may or may not guarantee income (bonds). The latter include shares.

Classification

When answering the question about what a company's shares are, you need to decide on their classification. They are divided into different types: electronic, paper, bearer, registered, etc., but the most important classification for the investor involves their division into ordinary and preferred.

The owners of the latter receive guaranteedconstant dividends on shares of companies whose preferred shares they own, but do not participate in the general meeting of shareholders and do not claim large payments, if such a decision is made. Ordinary shareholders may not receive dividends at all if the board of directors decides to use the firm's profits for some other purpose, while preferred shareholders receive them anyway. The former have the right to participate in the general meeting of shareholders.

Company share trading

Today, legal entities issue book-entry or electronic shares. The stock exchange of companies in Russia is the Moscow Exchange. It is on it that stocks are traded on the stock market. It was formed at the end of 2011 as a result of the merger of the MICEX and RTS, which by that time were the largest players in the stock and futures markets.

The purchase of company shares is carried out from a specific brokerage account (a broker can be described as an intermediary - a professional participant in the securities market through which trading is carried out), which is opened by a certain individual, credits a certain amount there (the minimum differs for different brokers), after which you need to choose a broker and conclude an agreement with him. After the conclusion of the latter, a current account is opened, from which money will be transferred for the purchase of shares to the broker's account. An account will also be opened with a depository to store shares and other securities there.

After that, you need to install the appropriate software that will support trading on the exchange, the most popular of which is Quik. As you make a trade, various reports come from brokers that you need to study in order to understand what is happening with investments.

Russian stocks are listed on the Moscow Exchange. They have a different value for each current moment in time. Records of acquired shares by a specific individual are stored in an electronic register. If you doubt the availability of shares, you need to order an extract from the depository.

Share trading is carried out in the T+2 mode, that is, settlements on completed transactions are carried out 2 business days after the end of the transaction. You can sell a share on the day of purchase. T+2 is a mode that is necessary first of all when calculating dividends, because if you count on them, you need to purchase shares 2 days before the shareholder register is fixed.

Strategies for trading stocks

Shares of Russian companies today are sold through the stock market through the implementation of one of the tactics: speculative or investment. The first is called trading and consists in playing on the value of shares, as a rule, for a short period of time - from a few seconds to a day. In this case, a tool such as technical analysis is used. Investments are made when assessing the fundamental economic performance of a particular company, whilesearch for undervalued companies.

Speculative tactics involve the use of certain directions, called strategies:

• scalping (closing trading positions with the lowest possible profit);
• intraday, day trading or intraday trading;
• algo trading (using trading robots);
• swing trading (trading positions are carried over to the next day).

Top investment strategies:

• value investing (buying shares at a lower cost);
• buy and hold;
• dividend strategy (investment is made in stocks that will bring stable dividends);
• acquisition of growth stocks (stocks of high-growth firms).

Earnings on the stock exchange

Today, stocks of companies traded on the stock exchange do not guarantee buyers a benefit. None of the brokers and investors can promise that the money invested in certain shares will definitely bring income and the investor will not incur a loss. You can earn money only by making smart investments, conducting technical and fundamental analysis.

E-stock trading with Quik

The program itself can usually be downloaded from the broker's website, which provides a username and password for it. Next, we begin to understand. We go to the trading terminal. We find the company we are interested in. We fall into the trading glass. What is it here? Company shares, purchase price, pricesales and lots. The latter can include both one share and several, each company has its own lot size. The number of shares less than the lot size cannot be bought.

Shares can be bought both at the current market price and at the price you have declared, with a waiting period until someone wants to buy these shares at the stated price. In addition, the program can be configured to buy and sell shares when they reach a certain price. Accordingly, if this price is not reached, the purchase and sale of shares will not take place.

In addition to using the program, applications can be submitted by voice over the phone.

Taxation of shares

Profits received on the stock market are classified as income, and, accordingly, personal income tax must be paid on them at a general rate of 13%. A broker acts as a tax agent; he pays tax for an individual at the end of the calendar year or when withdrawing money from a brokerage account. Currently, brokers open individual investment accounts, which can be used to receive tax deductions.

OTC stock market

In addition to publicly traded shares, there are many shares of small companies that are traded on the so-called over-the-counter market. Here, trading is carried out using the RTS Board information system.

Illiquid assets are traded on this market. Transactions go through a broker by phone. He searches through the above trading terminal for the shares we need at a price that suits us, or he can set our price and wait for someone to want tosell your shares at this price.

Besides this, the seller can be found by yourself through minorityforum.ru. After finding the seller, a call is made to the broker, and then he calls the counterparty to conclude a deal. Such a purchase is more profitable because it allows you to bargain.

A broker in both the exchange and OTC markets takes a commission, which is usually higher in the latter market.

In closing

So, to the question of what a company's shares are, one can answer that this is a tool that allows the company to develop, and for an investor or speculator to make a profit or go bankrupt. If you hope to receive income, as on a deposit in a bank - having made a deposit, not taking care of it until the end of the deposit term, then you are most likely to be ruined. To prevent this, you need to use the available opportunities of fundamental and technical analysis, apply the strategies used.

It is hardly worth counting on large dividends in modern Russian conditions.