what are shares? shares explained simply for beginners

What are stocks? Simply Explained

For many it is clear, but for beginners it is not always explained simply: What are stocks? You can find out more about this topic today. Next time we will also answer questions such as what are equity funds, what are equity bonds or what are equity indices?

At Schwiizerfranke we pay attention to practical suitability and simple Explanations. By the end of the article, you should have answered your question and learnt a few things. Still have more questions? Then feel free to write them in the comments!

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What is a share simply explained?

Shares are securities which indicate the value of a share in a public limited company. Shares are usually tradable and are usually (but not all) traded on the stock exchange. There, the value of the shares is constantly determined based on supply and demand. Therefore, a share can also be called a tradable share certificate.

The first share certificate in a company by the way, was created in 1288, almost 1000 years ago.

Simplified could be This may indicate that you own 10% of a company. The value of your share will rise and fall depending on the current value of the company. Ideally, you should buy shares cheaply and sell them later at a higher pricewhen the value of the shares has risen. 

Of course there are many special forms and exceptions, but you have learned the basic understanding with this. 

what are shares? how does a share price come into being and how are shares created?

How are shares created?

If a company needs capital, for example to build a new building, there are several possibilities. For example, the owners of the company can invest their own private money or contribute to a Bank go and take out a loan there.

Info: Shares in English are called Stocks. Accordingly, the English term Stockmarket stands for the stock market.

Or they sell Shares in your company and in return hand over Share certificates, i.e. shares out. For example, there are currently 16,530.20 million tradable Apple shares.

By the way, it is not unusual for companies to buy back shares later. This means that they buy back their own company shares, which generally increases the value of the shares. Why is this so? This answers the question: How is a share price created?

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How is a share price created?

At In the case of exchange-traded shares, the price is determined by supply and demand on the stock exchange. The stock exchange acts as a "market maker" and stands in the centre, so to speak, by bringing sellers and buyers together. And how is a share price determined in detail? The price can be seen at any time from the traded prices and is communicated transparently on the stock exchange. In your Share purchase accountor in stock market apps you can see the stock price.

Incidentally, there is a small difference (so-called spread) between the selling price and the purchase price, which the stock exchange takes for itself in return. 

How to make money with stocks?

The exciting question now is probably how to earn money with shares? There are two main methods of doing this. 

  1. Earning money with capital gainsAbove, we learned that stock prices on the stock exchange are always on the move. If the profit expectations for a company whose shares are traded on the stock exchange increase, the prices on the stock exchange will usually rise soon. If you bought a share before, your share is now worth more than before. This is known as price gain. However, this is not yet realized because you have not yet sold the share. Only after the sale is your profit realized when the payment arrives at your deposit.
  2. Earn money with dividendsThere are various strategies to achieve invest. Since, as mentioned above, there are fees for buying and selling on the stock exchange, it can be a strategy to wait for dividends. To buy and keep shares in the long term. Some companies pay out dividends to their shareholders, which means that you can regularly receive credit in your Depot receives.

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In summary: Shares simply explained

Time and again, people have asked for an explanation of shares for beginners or even an explanation of shares for stupid people. There are no stupid questions, only stupid answers. Hopefully this article was a comprehensible explanation!

Shares are securities that indicate the value of an investment in a public limited company. They are often tradable on the stock exchange, which makes it very easy to invest in a company. You can make money with shares, but you can also lose money. It depends on the right strategy and the right shares. Selecting individual shares does not necessarily make sense for private investors, as experience has shown that the error rate is high.

One is often well advised with ETF'sThe reason for this is that one investment is made directly in an extremely large number of companies or entire markets. Your risk is thus reduced, because the risk of selecting "loser stocks" is lower.

You have more questions or suggestions?

Feel free to leave a comment!

2 responses

  1. I don't see a date on this post, but with the number of Apple shares mentioned, there should be a few zeros missing even at that time ....

    Very good posts, finally a finance blog south of the Rhine!

    Reply

    1. Hello, Thomas,
      thanks for your positive feedback and your good eye! Apple shares actually lost something, now they are corrected to the current level!
      Love!

      Reply
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