How does the stock market and stock trading work?
Small Stock Exchange multiplication table: How does the stock exchange work? How do stocks work?
If you are dealing with stocks and the stock market for the first time, you will often encounter a multitude of technical terms and feel that you are losing track quickly. Stock trading is not that complicated. How does the stock exchange work? How do stocks work? And how does such a stock price actually come about? We’ll explain the most important facts you need to get started in the equity world.
How do stocks work?
Another word for stock is security. You can buy a stock or a security. You are then co-owner of the company from which you purchased the stock. The share or the security, so to speak, represents this co-ownership or, in other words, it keeps it in writing.
And why is everyone talking about making money with stocks? That’s simple: if the company’s business is going well, the value of the stock goes up. If you wish, you can resell the stock at any time during normal market opening hours – at the value that the stock currently owns. In addition, many companies pay share holders a dividend. This means that you receive a share of the profit that the company made in a financial year. And what does the company have from it? It takes capital to invest. By going public and selling shares, the company receives financial support from investors who can use it for the production or deployment of employees.
Good to know: The name security comes from the fact that the value of the stock was actually recorded on paper in the past. This is no longer the case today. They are still called securities, but are only issued and traded in digital form. Incidentally, trading is called trading.
How do the stock exchange and stock trading work?
Buying and selling, ie trading in equities, takes place on the stock exchange. To buy and sell securities , you need a securities account. This is a kind of repository for your securities. You open one of these either at a bank or an online broker. In addition, you must have a checking account that allows you, for example, to credit profits for selling shares.
And how can you trade stocks? Basically, stock trading takes place in the following steps:
• Securities Number: Each security has a number. In your online depot, enter the number of the security you wish to trade.
• Price and trading center: In addition, you name a price at which you buy or sell the share and where you want to do it, ie at which stock exchange trading center.
• TAN: As with online banking, you usually need to enter a TAN to complete the deal.
How stock trading works in detail depends on the type of stock traded. You can not only trade stocks on the stock market, but also funds, bonds, mortgage bonds and more.
So how does the stock exchange work, or what exactly is it? You can think of the stock market as a sort of marketplace where buyers and sellers of securities meet and trade digitally.
Important: Once you understand how the stock market works, all you have to do is look out for official opening hours. Stock trading is often possible until 8 pm, but individual deviations from stock exchange to stock market are possible.
How does the price of a stock on the stock exchange arise?
The price of a stock is always determined by supply and demand. As a rule, the seller first makes a price offer, which the buyer can then accept. If he does that, it comes to a so-called execution: The trade is completed – the security changes its owner. The price at which the share was bought or sold is called the share price. Stockbrokers work on the stock market who have the task of determining the price. They compare supply and demand. The goal is to find a share price that leads to the highest possible turnover. Simply put, a price at which as many investors buy or sell shares as possible. Computer programs assist in finding this course. In addition to supply and demand, they also take into account the number of securities offered and demanded. The stock exchange itself monitors the trade and thus ensures transparency and security, both on the side of the buyer and on the side of the seller.
On which stock exchanges can you trade stocks?
You can trade stocks on domestic and foreign exchanges. We have put together a selection of possible trading venues here:
• Deutsche Börse AG (Frankfurt Stock Exchange)
• Dusseldorf Stock Exchange
• NYSE – New York Stock Exchange
• London Stock Exchange (LSE)
• Tokyo Stock Exchange (TSE)
• Euronext (based in Amsterdam, operates several exchanges, such as the Paris, Lisbon or Amsterdam Stock Exchange)
• NASDAQ (National Association of Securities Dealers Automated Quotations in the US)
If you want to focus more on how the stock market in general and stocks work in particular, or how to successfully engage in stock trading, you can always get support from experienced bank advisors. In addition, you will receive further online information, for example about the individual stock exchanges and which securities are traded there.
Please note: The illustrations do not claim to be complete or correct. There is no guarantee for this. They are only for a first orientation.