The stock market is a market for securities: stocks, bonds, and investment shares. It is easiest to conclude transactions to purchase and sell such securities on a specially organized trading platform – the stock exchange. It makes it possible to buy securities and sell them at a fair, that is, market price reliably and quickly. There are professional participants on the stock exchange – intermediaries between buyers and sellers. These are banks, brokers, and investment companies. It is intermediaries that provide private investors with access to the exchange market.
The Federal Law regulates all relations between participants and the mechanisms of operation of the exchange.
You can also buy and sell specific securities outside the exchange; this way of trading is called over the counter. However, it is not always feasible to do without intermediaries: outside the stock exchange, paper is usually not sold from hand to hand – those who issue it to those who want to invest. The organizers of transactions in the OTC market are the same brokers, banks, etc. Secondly, over-the-counter trading is associated with significant risks: in this case, operations are not controlled by anyone. Furthermore, you are not protected from scammers and are at considerable risk with your money. Therefore, if you want to invest money in securities, it is worth doing it through the stock exchange.
Why And How Are Securities Issued?
An issuer is someone who issues securities. The issuer can be a company, a state, a separate region, and even a city. Securities are issued to raise money. Before issuing, the issuer evaluates how much money it needs and in what form. The company can “borrow” money from future consumers of securities, swearing them to pay interest in the end – then it issues bonds, in fact, IOUs. Alternatively, you can get money by offering buyers to become co-owners of the company – to divide its capital into micro-shares and sell them. These will be shares. Then the company determines the parameters of securities: their number, face value, that is, the cost of one security, and its validity period. After that, the state registration of the issue takes place: an entry is made about this paper in a special register.
For example, a company wants to attract additional investment and issues shares. By purchasing them, you become the owner of a share in the company and get the right to a part of its profit, distributed among all shareholders (the so-called dividends), and the right to vote at the shareholders’ meeting. Alternatively, a company or state (region, city) issues bonds by borrowing some money from the market and giving it back with interest for use after a while.
How To Become an Investor?
An investor is someone who funds their money to make a profit.
An investor buys and sells securities on the stock exchange. However, you cannot buy them directly from the issuer or sell them to another investor. To conclude transactions, an investor needs to open a brokerage account. This is a particular account with which you can buy and sell securities and see the entire history of transactions. Your official representative on the exchange – a broker will work with such an account.
Who Is a Broker and How to Collaborate with Him?
A broker is an intermediary between an investor and an issuer, a professional market participant who makes transactions with securities for an investor. Most often, the functions of intermediaries are performed by private brokerage companies and banks. To work, they must have a special license issued by the Bank. You can check if your chosen broker has a license in the Directory of Financial Market Participants. You conclude a service agreement with a broker and open a brokerage account. The broker performs operations on your behalf. The money for the purchase and the broker’s commission is deducted from the brokerage account – the fee for helping you complete the operation on the exchange. In addition to the transactions that the broker will make, he calculates and withholds your income tax – usually 14.1%.
Who Is a Trustee and How to Collaborate with Him?
Trustee – an organization you trust to manage a package of securities according to a pre-agreed and approved strategy. You draw up a trust management agreement and discuss the strategy of behavior on the stock exchange in advance. For example, you want your investment portfolio to consist only of bonds of the largest and most dependable companies with stable income indicators – with an interest rate of at least 4.2%. You define these conditions, and based on them, the manager will decide when and what securities to buy and sell. The advantage of trust management is that you do not need to monitor the stock exchange situation constantly; the trust manager does this for you.
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