Many people are familiar with investment business and trading on the stock exchange mainly from stories from films – about the wolf from Wall Street and Gordon Gekko. Meanwhile, investing on the stock exchange is far from the fantastic adventures that we are shown in films.
The first myth: investing on the stock exchange is shamanism and deception
Popular films about brokers and traders tell amazingly adventurous stories and can give rise to the harmful idea in the minds of viewers that all the activities of investors are an obscure quackery with a prison in the future. This is fundamentally wrong.
The financial system consists of many elements and is strictly controlled by the state. We are usually familiar with the work of banks, pension and insurance companies and we know that they are highly regulated. Investment activity is exactly the same full-fledged element of the financial system of the state with no less strict control and operating rules. But if the appeal to a bank or insurance company occurs directly, that is, the chain of interaction is simple (client → bank), then investment activity has one more link.
You are an investor, i.e. a person who has funds and decides to invest them in order to generate income.
The exchange is a special financial institution where securities and currencies are sold and bought. Why is it needed? To raise funds. The most famous and understood securities are stocks and bonds. Stocks are actually part of the company. By purchasing a share, you become a co-owner of the company, and the company receives your funds and has the opportunity to put them into development. A bond is an IOU. The state or company wants to borrow money and promise to return it to you with interest, and for this they issue an analogue of a receipt with obligations – a bond. It is in order for all parties to have the opportunity to perform these operations, and there is an exchange.
But an individual cannot come to the exchange, like to a store, to choose and buy something. We need a certain infrastructure – both technical (it is now possible to choose and buy securities only in paperless, electronic form), and for the execution of transactions. For this there is a broker company – it just provides an individual with access to the exchange offers, carries out all the necessary procedures and provides additional services: consults, conducts training, etc. It is the broker that provides clients with special software with which you can directly make purchases and sales on the exchange.
All these activities are licensed, the rules for their work are determined by the relevant laws.
Myth two: investing on the stock exchange is very difficult
Investing is not an adrenaline-filled gamble as shown in the films. In fact, investing on the stock exchange is a purely technical procedure. You select a security and buy it by simply pressing a button. After that, the corresponding amount of money is debited from your brokerage account, and the securities are credited. If you want and need to, you sell them. You can buy or sell not on your own, but by giving an order to the broker by phone.
There is nothing complicated in the process of buying or selling securities. If you have managed to open a deposit in a bank at least once, then you will also cope with the purchase of securities. Yes, it will take some time and effort. But in the end, there is an opportunity to invest in more profitable financial instruments and get significant income.
Now all brokers have training centers, they make videos of lectures, and there are also a lot of textbooks. You can choose a format convenient for you and get a primary understanding of the market, which you can then deepen and expand in a direction that interests you. It is worth spending time on this in any case, even if you do not dare to invest on the exchange. Without exception, all study materials tell about how the world financial system works, what laws it operates under, and how you, a private investor, can get income with it. After any course, you will understand what news about changes in the key rate, indices and oil prices mean, how it affects the work of governments and the life of countries, and what will come back to haunt you personally.
Gradually, you will find the securities that are most comfortable for you. An army of financial analysts who follow the events of the financial market and regularly and promptly release reports will help you.
Myth three: investing on the stock exchange is expensive
Another myth that came to us from the movies: the stock exchange is for the rich. This is not true. You can start shopping on the exchange with hundreds of dollars. Of course, the more money you put in, the more your bottom line will be. For example, a 10% return on $ 3,000 and $ 30,000 will be 300 and 3,000, respectively. The difference is clear. But beginners are encouraged to gain experience and practice on small amounts.
The fourth myth: investing on the stock exchange is a casino
And the last thing: after watching movies, people often think that the stock exchange is the same casino, a game with luck. This is not true. The main reason for the myth is the lack of clear figures for possible income. Investments on the stock exchange are quite unpredictable, there is a possibility of both earning hundreds of percent and losing your funds. The financial market requires meaningfulness: you must understand and understand what is happening in the market. Investing is not a game, but intelligent and meaningful actions based on knowledge and observation.
There are simple and understandable rules of risk management – for example, the well-known principle “do not put everything in one basket”. If you decide to invest on the stock exchange, then it is better not to invest all your funds in one instrument, but to purchase several different ones – stocks, bonds, currency. Moreover, now brokers offer ready-made portfolios of securities that are balanced in composition, and even if one security began to lose value, there are always others that will rise in price.
It is very important to approach investments with a cool head. First, study the market and get ready, make deals according to the planned plan, without succumbing to emotions and momentary impulses. Second, always have a plan B in case things don’t go as planned. Third and most important: do not give in to excitement. Trading discipline must be in unconditional authority.
Conclusion
Those who invest on the stock exchange are ordinary people. And the exchange market is a very real alternative to bank deposits. There is nothing so complicated, unusual and illegal in this. The bank will always remain a bank, but is it not interesting to be a shareholder of McDonald’s and receive dividends on the shares of one of the largest companies?
