Share trading for beginners and professionals

In times of low interest rates, stocks promise high returns. In our overview for beginners, you can find out how to buy shares and everything you need to know about direct trading in shares and your share portfolio.

Buying stocks in five steps

1.Open stock portfolio: It is best to do this with a direct bank on the Internet that does not charge any deposit fees. So you can buy stocks and ETFs cheaply and comfortably from home.
2. Select shares: Find out about securities that you are interested in. Make sure that the spread is as wide as possible. Tip for beginners: Indexfods, or ETFs for short, offer a wide portfolio of stocks at low cost and are perfect for getting started in stock trading.
3. Search shares: You can use the search mask in your portfolio to find the previously selected stocks or ETFs. All you need is the securities identification number (WKN) of the respective share or ETF. You can find this on the Internet if you search for the name of the relevant share.
4. Buy shares: In the next step, you can buy the shares by entering your deposit into the order. Now you can choose whether you buy on a stock exchange or at a direct dealer who often has cheaper offers. Important: Only trade in shares between 9 a.m. and 5.30 p.m., the trading hours of the Xetra electronic stock exchange.
5. Wait: Once you have acquired the shares, you need patience. Because the success of shares usually only takes some time. So don’t panic if the price of your shares or ETFs drops in the meantime. Because short-term price fluctuations balance each other out in the long term.

Those who invest their money in shares can easily build up a small fortune. The most important prerequisites for this are a broadly diversified equity portfolio and a long investment period.

Because on the stock market: Short-term fluctuations balance each other out in the long term. In the long run, stocks promise far higher returns than fixed-term accounts or bonds.

For the broadest possible diversification on the stock market, funds that contain securities from several companies are recommended. Index funds, also called ETFs, are particularly suitable for beginnersthat track a specific stock index such as the German Dax.

ETFs are particularly cheap to buy from direct dealers on the Internet. Alternatively, you can also buy shares and ETFs on various trading venues on the global stock exchanges.

Common direct banks for your stock trading are e.g. the DKB, Comdirekt and Consors.

What stocks and ETFs should I buy?

That depends very much on your individual risk tolerance – and on the price of the respective security. It also plays a role how much you deal with individual companies, markets and the stock exchange in everyday life and how you can assess possible trends in the future.

Basically: You should never put everything on one card. Newcomers to stocks, in particular, perform better with a broad portfolio of stocks than with a small selection of individual stocks, as they reduce the risk of making losses. Index funds are therefore especially for beginners, short ETFs (“Exchange Traded Funds”), recommended.

In contrast to conventional equity funds that an investment manager “actively” controls, these “passive” funds use computers to replicate entire stock indices, such as the German DAX, one to one. That means: the value of the 30 largest Germans increases Stock corporations on average by three percent, the value of the fund’s share also increases by three percent.

The highlight: Since no manager is paid for his work, ETFs incur significantly lower fees than conventional funds.

ETFs are therefore cheap on the one hand and on the other hand offer a wide spread of your money across numerous companies. In addition to Dax ETFs, there are also index funds such as the MSCI All Country World, which contains company shares of the 2,500 largest listed companies in the world and thus covers virtually the entire world economy.

Why do I need a separate stock account?

A conventional current account is not enough to buy stocks and ETFs. You will need a separate stock account where you can keep your securities. In principle, you can open a stock account at any branch bank. Most of the time, however, this entails annual fees that you have to deduct from your return.

  • Share deposit: Learn how to find the best for yourself and what you should pay attention to when opening.

It is therefore recommended that you open your deposit at a so-called direct bank on the Internet. There are generally no custody fees here, most online custody accounts are free of charge. When trading stocks, you only incur transaction costs.

Where can I buy stocks and ETFs?

Fundamentally, stocks and funds on the Stock exchange traded. In order to buy company shares or ETFs on the stock exchange, you can search for the desired securities via your custody account and purchase them after selecting a trading venue (e.g. the stock exchange in Frankfurt). The price per share or ETF can vary per trading venue.

Alternatively, you can buy stocks and ETFs from a direct dealer who keeps stocks and fund shares in stock. The central difference between exchange trading and direct trading: The exchange is a kind of marketplace where buyers and sellers of shares meet and negotiate a price. A direct trader, on the other hand, calls up fixed prices and is simultaneously the buyer and seller of shares. Exchanges are also subject to strict supervision by the relevant finance ministries. Direct trading, on the other hand, is not particularly monitored.

Exchange trading and direct trading have different advantages and disadvantages. The most important at a glance:

Advantages of exchange trading:

  • The trade is regulated by the state.
  • The price is very transparent because it results from the current prices on the stock exchange.

Disadvantages of exchange trading:

  • Limited trading hours depending on how long the exchange has been open.
  • The shares often cost more than in direct trading because there are additional exchange fees.

Advantages of direct trading:

  • Shares often cost less than on the stock exchange.
  • Trading hours are longer, and you can usually still buy shares from a direct dealer late in the evening when the stock exchange has been closed for a long time.

Disadvantages of direct trading:

  • Trade is not subject to government regulation.
  • How exactly the price of the share is composed is often not clear for investors.

Common direct dealers are e.g. Tradegate, Lang & Schwarz, Baader Bank.

How do I buy stocks and ETFs online?

Whether exchange trading or direct trading: If you have opened an online deposit for your shares, the next steps are very easy.

  1. You can easily find the desired shares and fund units using the search mask of your portfolio. All you need is the security identification number (WKN) or the international identification number (ISIN) of the security.
  2. As soon as you have selected the relevant share or the desired fund, you go to the order entry to buy: Only now is it decided whether you buy the securities on a stock exchange – or at a direct dealer with which your direct bank may cooperate.

Find WKN and ISIN: If you do not know the WKN or the ISIN of a company, enter the name of the company and the short name “WKN” or “ISIN” in a search engine. You will find the relevant information there.

The most important criterion when buying is the price: Even if it only differs by decimal place for each trading place or direct dealer, you should always choose the cheapest offer.

Important when trading stocks: Only buy and sell stocks and ETFs from Monday to Friday between 9 a.m. and 5.30 p.m. when the electronic stock exchange has opened Xetra. In this way you can compare whether the direct trader of your choice actually offers a cheaper price than trading on the stock exchange.

When should I buy stocks and ETFs?

This cannot be answered clearly. Finding the perfect time to buy is difficult. The reason: the future is uncertain. Even stock exchange experts and analysts cannot make an exact forecast of developments in the markets.

If you are unsure, possibly want to wait for falling prices and the associated lower share prices, a purchase in stages is advisable. By dividing your investment sum and investing successively, you reduce the risk of entering the stock market if the price is too high. As a result, the importance of the time of entry decreases. If you want to invest a certain monthly sum in an ETF in the long term according to the same principle, you can also cost-effectively at many direct banks complete a stock savings plan.

Important when entering the stock exchange: Only invest money in stocks that you do not need in the medium term. In the short term, the prices on the stock exchange can also fall, so that you may make losses. In the long term, however, the price fluctuations balance each other out. That is why stocks are particularly suitable for wealth accumulation over more than 15 years.

What should I look for as a beginner when buying stocks and ETFs?

As with any product, you should keep an eye on the price when trading stocks. The value of individual shares can be measured using various parameters. The course development in the past is only one of many factors, which is also never a guarantee for the future course.

For example, the price-earnings ratio (P / E ratio) provides information about how high or low the market values ​​a company’s stock compared to the company’s profit. If the P / E ratio is relatively high, this can indicate a (too) high price of the share. The Zalando share, for example, had a P / E ratio of 113 in 2019 – the share was therefore relatively expensive in relation to the profit. For comparison: Lufthansa shares, on the other hand, only had a P / E ratio of 6.4 in the same period.

Another important factor is whether a company last shared its shareholders in its annual profit through a dividend distribution – and how high this payment was. This may indicate that you, as an investor, will continue to benefit from dividends in the future.

ETFs can also be assessed using key figures. However, investors should find out more about the current fund fees than with individual shares. The so-called total expense ratio, abbreviated TER (English for “Total Expense Ratio”) provides information.

The total expense ratio includes all fees that accrue annually as long as you hold the ETF share. These include administrative costs and VAT that the fund provider has to pay. If you invest around 100 euros in an ETF with a total expense ratio of 0.25 percent, the costs per year are 25 cents. These will be deducted from your potential winnings, you do not have to pay extra.

The cheapest ETFs sometimes have a total expense ratio of just 0.12 percent per year. For comparison: With actively managed equity funds, the annual expense ratio is sometimes up to five percent of fixed assets.

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