Security is considered a potential market, attracting many investors looking for opportunities to profit from idle capital. Investing in stocks is no longer a strange field, but understanding and grasping basic knowledge about the stock market is still a problem for many new traders. In this lesson, we will provide you with useful information, helping you get an overview of what the securities market is and how it works.
What is security?
Security is a financial instrument, an abstract commodity that can be bought, sold, held or bought on a securities market.
Securities are one of the most popular financial investment channels worldwide due to its higher profitability. For those who are new to this market, one of the first things you need to know is the different types of titles.
How does the securities market work?
The securities market allows buyers and sellers to negotiate prices and make trades. In particular, the securities market operates on the basis of the interactions between the three groups such as the following diagram:
- The stock exchange – The publicly traded company applies to the stock exchange so that they can be allowed to offer shares to the public. The company must comply with extremely strict requirements before investments are open to the public. The duty of the Stock Exchange is also to protect the investor and safeguard his interests.
- Brokers – Investors do not buy directly on the Stock Exchange but on Brokers. Only brokers authorized by the Securities Exchange are authorized to buy and sell shares of shares. This was done simply for the purposes of control and simplification of work. The Securities Exchange prioritizes the monitoring of publicly traded companies while brokers deal with the investing public.
- The Investor – You will need to open a trading account on a broker to buy or sell shares of a particular company. For this, the broker will charge a very small fee for the transaction. Brokers sometimes also provide you with information about which companies are good to buy in addition to their transaction services.
So, in summary, here’s how the stock market works: (1) The stock exchange monitors and controls companies that would like to go public. (2) Investors do not buy directly on Brokers. (3) Brokers become the intermediary between the Stock Exchange and investors.
What instruments are traded on the securities market?
There are 3 types of instruments traded on the securities market, including:
A security is a security that represents the ownership and legitimate interest of the shareholder in the assets or capital of the company.
When a company wants to grow its business, it raises capital by issuing shares. When you buy shares, you own part of a company. Depending on the number of shares you buy, if the company grows effectively in the future and the shares go up, you will get a profit from the company. The more shares you own, the more profit you receive.
In addition, when you hold certain shares of companies, you will also be shared dividends. Apple, for example, paid a dividend of more than $3 per share last year. This is also why so many people are interested in investing in stocks to grow their health.
Example: Google Corporation issues 1,000 shares. If you own 01 shares of Google Corporation, it means that you own 0.1% of that company. If you own 500 shares, you own 50% of this company.
A bond is an instrument of indebtedness of the issuer (government or enterprise) to the lender (investors).
In addition, investors often follow the performance of the stock market by looking at a large market index.
When you buy bonds, you are lending money to a company. In return, you will receive periodic interest payments and your principal, initial investment – on the due date.
For example, Apple Corporation issues 100 bonds with a price of $1 billion each. The interest rate of 10% / year, so you will be paid 100 million USD of interest every year. and the duration of 03 years. The duration of the loan is 03 years and the total interest for 03 years is 300 million DOLLARS. When the bonds expire, Apple Corporation is obligated to return the initial investment of $1 billion to you.
Compared to stocks, bonds are typically considered safer investments because bondholders have a higher credit on the activities of the issuing company in the event of bankruptcy. In other words, if the company is to liquidate all its assets, bondholders will be paid before ordinary shareholders.
An index is an indicator or measure of change in a securities market, group of assets, or basket of securities.
For example, the S&P500 and the Dow Jones Industrial Average are two of the most well-known stock indices. In which the S&P500 represents the performance of the top 500 US companies.
Indices are seen as the benchmark for stock market investments. Investors only need to look at them to make a judgment, not considering every type of action. Investors can trade directly on these indices. When investors have a general opinion of the market situation with positive signals, they need to buy an index. The amount will be divided equally among the best shares, which is cheaper than buying individual shares.
When investing in stocks, investors face risks associated with a specific company or business. However, when trading indices, investors’ portfolios are automatically diversified with many different stocks.