For example, let’s say you own shares in a company whose value increases as a result of the invention of a new, innovative product. In this case, the company’s share price usually also rises. You can now sell the stock at a higher price than you bought it for. This results in so-called price gains for you.
There are basically two different types of share trading:
- Day trading: So-called day trading means that investors monitor the stock market every day. Depending on how a share develops, they sell it – or buy new ones. Investors try to take advantage of daily price gains. They are not concerned with long-term investments, but rather focus on short-term profit opportunities. The downside: The risk is much higher here. After all, no expert can accurately predict whether a share will rise or fall in value.
- Long-term investment: In long-term investments, investors buy shares once or invest in a so-called equity fund. Then they hope that the value of the shares or the fund will develop positively. A stock fund is a kind of basket that contains many different stocks. In this way, you diversify your money and reduce the risk of loss. A special share fund is a so-called ETF or index fund. In this case, a computer algorithm replicates a stock index. ETFs therefore have a low risk compared to individual shares – and are therefore particularly suitable for private investors.
The second variant is recommended for beginners and beginners. The reason: If you are not very familiar with stock trading, you can easily make mistakes and lose money. It is therefore best to diversify your money with a share or ETF savings and to invest long-term over a period of more than ten years.
What are the benefits and risks of buying stocks?
If you buy shares, you can participate in a company’s performance and thus increase your money in the long term. Many limited companies also pay out a so-called dividend, i.e. part of their profit, to the shareholders.
In times of low interest rates on savings accounts or money market accounts, it pays to invest in shares or mutual funds, that is bundles of shares. Because with a long-term investment, relatively high returns can be tempting.
But be careful: The higher the possible return, the greater the risk of loss. You should keep that in mind when you invest in order not to lose your money.
A popular way of investing in shares is the so-called “stock picking”. This means the purchase of individual shares in selected companies. However, this is less suitable for private investors. Because it increases your risk of loss if you only invest your money in individual company stocks instead of diversifying them broadly. In contrast, the investment is in mutual funds or ETFs.
An ETF (Exchange Traded Fund) is a so-called exchange-traded index fund: In this case, a computer algorithm replicates a stock index such as Dax. If you buy a share in an ETF, you spread your risk more widely than by buying individual shares.
It is also easier to invest in an ETF than stock picking. Because the risk is lower, you don’t have to constantly monitor the company and decide whether to buy or sell a stock.
What do I need to start trading shares?
The easiest way to open a share deposit is with a direct bank or an online broker, i.e. a share trader, on the Internet. However, you should compare the providers with each other.
You can easily manage your shares, buy new ones or sell shares in your securities account. Since there is money involved in all of this, in addition to the deposit, you must have a so-called clearing account. The easiest way to open this is with the direct bank where you want to make your deposit or have already done so. You can also link your deposit to a clearing account in another bank.