Stock Exchange: What You Need to Know About Trading Stocks, Investments, and the Securities Market

The stock exchange serves as the primary tool for capital attraction and asset management in the global economy. Companies place their shares on its platform to attract financing for business scaling, while investors have the opportunity to participate in the growth of promising sectors.

What is a stock exchange and how does it work

A stock exchange is an organized platform where trading of shares, bonds, and other financial instruments takes place. The platform plays a key role in the economy by connecting companies in need of capital with investors seeking profitable investments.

What the platform does:

1. Provides liquidity, allowing participants to buy and sell assets quickly.
2. Determines the market value of securities through the mechanism of supply and demand.
3. Establishes transparent trading rules that protect market participants from manipulation and fraud.

Examples of popular platforms: New York Stock Exchange (NYSE) – the world’s largest by market capitalization, NASDAQ – the dominant platform for technology giants like Apple and Microsoft, London and Moscow Stock Exchanges, uniting Russian organizations.

How trading works on the stock exchange

Trading takes place in a strictly regulated format. Trading participants include private investors, institutional funds, and market makers.

The process involves three stages:

1. Order registration. Capital holders place orders to buy or sell shares through brokers.
2. Deal execution. Exchange systems automatically match orders based on market prices.
3. Settlements. After the agreement is completed, assets and funds are transferred.

The price of securities is influenced by factors such as demand, company financial indicators, economic, and geopolitical events. For example, the rise in Tesla’s shares in 2020 was associated with increased demand for electric vehicles and positive financial reports.

How to invest in the stock market: first steps for a novice investor

Investing in the stock exchange requires a thoughtful approach, especially for those who are just starting to explore the field. Choosing a broker is an important stage. The platform provides access to trading, determines the convenience of operations, and affects the final costs. For example, Tinkoff and VTB Investments offer access to the Moscow Exchange, which is particularly relevant for Russian participants. Popular platforms for accessing international markets include Interactive Brokers, offering a wide range of financial instruments.

Setting goals is the next stage. Beginner investors need to decide whether long-term investments aimed at capital growth suit them, or short-term strategies involving frequent transactions. For example, long-term investments in shares of technology giants like Apple or Microsoft provide the opportunity to receive dividends and count on sustainable asset growth.

Before buying shares, it is necessary to thoroughly analyze companies. Study the financial statements to understand how stable the business is and whether its growth prospects are promising. For example, “Gazprom” shares often attract attention due to a stable dividend policy and a leading position in the energy sector.

Popular investment strategies

Different investors choose suitable tactics to effectively utilize the opportunities of the stock exchange:

1. Long-term investments are the foundation for those aiming for stable capital growth. For example, buying shares of high-capitalization companies like Microsoft allows for anticipating asset value growth over several years. These investments are often accompanied by receiving dividends, making them particularly attractive.
2. Short-term trading requires high involvement and a deep understanding of the market. Day trading is based on price changes within a day, making it popular among experienced traders. Swing trading, on the other hand, focuses on holding assets for several days, allowing to benefit from short-term trends.
3. Index investing is a popular solution for risk reduction. Purchasing ETFs, for example, tied to the S&P 500, allows for diversifying investments, distributing capital among dozens of major companies. This provides stable returns and reduces dependence on price fluctuations of a single organization’s shares.

Securities market: what you need to know

Participants in the stock exchange encounter a variety of instruments, each with its advantages:

1. Shares offer the opportunity to become a co-owner of a company and participate in its success. For example, Sberbank shareholders receive dividends of 6–8% of the value of securities, making such investments particularly profitable.
2. Bonds, on the other hand, offer a fixed income, making them more predictable. Government instruments, such as OFZs, allow for earning income with minimal risks, attracting conservative investors.
3. Derivative financial instruments, such as options and futures, are complex products designed for experienced market participants. They allow for hedging risks or profiting from changes in asset prices – such as oil or gold.

Risks and how to minimize them

Investing in the stock exchange involves certain risks that can significantly impact results. One of the key factors remains the volatility of stocks. Prices change due to economic data, company news, and global events. For example, in 2022, Netflix shares dropped after the report on a decrease in subscribers, affecting asset values.

Liquidity risks arise when financial instruments are difficult to sell at the desired price due to low market demand. This is especially relevant for small and medium-sized organizations with limited visibility.

An effective way to minimize losses is diversification. Distributing capital among shares, bonds, and funds helps reduce dependence on the fluctuations of a single asset. For example, simultaneously investing in shares of major technology companies and purchasing OFZs provides a balance between profitability and stability.

Conclusion

Deeply understanding the workings of the stock exchange allows for minimizing risks, leveraging market advantages, and achieving financial goals. For novice investors, it is important to start small, regularly educate themselves, study specialized literature, and analyze changes on the platform.