Financial Market & Products such as Stocks or ETFs explained simply

What are Stocks?

Stocks are probably one of the assets that everyone is familiar with, at least by name. But what exactly is a stock? Let's take a closer look at what function a stock fulfSils, what types of stocks there are and whether they can be an interesting form of investment.

Stock is the name for a security that certifies the holder of the stock as a shareholder in the company issuing the stock (which is why stocks are also referred to as shares). Stocks are a financing instrument for companies that serve to raise equity capital on the capital market. The size of the stake in the company is determined by the number of shares held and the total number of shares issued by the company. With the purchase of a stock, the shareholder receives various rights, but also obligations.

How is the stock price calculated?

The stock price indicates the value of an individual share in a company. The stock price, also known as the share price, is determined by supply and demand, as in other markets. If the demand for a stock is high, its price usually rises because the number of available stocks decreases. If, on the other hand, demand for a stock falls and many shareholders sell the stocks they hold, the stock price falls due to the growing supply.

The business figures and economic outlook of the company in question naturally have a major influence on the demand for a stock, and thus the stock price. If, for example, the quarterly results published every three months are better than expected or the outlook for the following quarter or financial year is assessed positively by the company, the company's stock price usually rises. If the figures are worse than expected or the outlook is negative, the stock price is likely to fall.

What types of stock are there?

There are four different types of stocks: ordinary stocks, preference stocks, bearer stocks and registered stocks. As ordinary and preference stocks are the ones that most investors come into contact with, we would like to describe the characteristics of the two types of stocks here.

  • Ordinary stocks: This is the best-known type of stock, which is why it is often referred to as "normal" stock. For example, owners of ordinary stocks receive voting rights at the company's Annual General Meeting. They can therefore influence various decisions at the Annual General Meeting, depending on the size of their stake in the company. In addition, owners of ordinary stocks are entitled to receive the company's dividend determined at the Annual General Meeting, i.e. a share of the company's profits, in proportion to the number of stocks held.
  • Preference stocks: As the name suggests, preference stocks grant the holder certain privileges. In return, the owner of preference stocks waives certain rights, such as the right to vote at the Annual General Meeting. In return, holders of preference stocks benefit from a higher dividend payment, for example. Preference stocks are also divided into cumulative and convertible stocks. Convertible preference stocks can also be converted into ordinary stocks from a fixed date.

How to buy stocks?

Although buying stocks may seem complicated for outsiders and beginners, it basically works like a normal trading transaction. All that is needed is the right dealer and a place to store what you have bought. In the case of buying stocks, this is the broker where the stock is bought and the custody account where the stocks are kept. As a rule, the broker also offers the corresponding custody account from a single source. In most cases, however, the owner of the stocks has the option of transferring their custody account with the stocks it contains to another provider, for example if they wish to switch to this provider due to more favourable conditions.


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