Stock trading for beginners – this is how it works

In times of low interest rates, stocks promise high returns. How to buy stocks and everything you need to know about direct trading in stocks and your stock portfolio can be found here in our overview for beginners.

Buy stocks in five steps

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

Those who invest their money in stocks can easily build up a small fortune. The most important requirements 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 so far higher returns than fixed deposit accounts or bonds. It is not for nothing that stocks are a popular form of investment recommended by experts.

For the widest possible diversification on the stock market, we recommend funds that contain securities from several companies. Index funds, also called ETFs, are particularly suitable for newcomers to equitiesthat replicate a certain share index such as the German Dax.

ETFs can be bought particularly cheaply from direct traders on the Internet. Alternatively, you can also purchase stocks and ETFs on various trading venues on the world’s stock exchanges.

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

Which stocks and ETFs should I buy?

That depends very much on your individual risk tolerance – and the price of the respective securities. 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.

This is why shares in companies are popular, especially among those starting out on the stock exchange Make them from your everyday life know. In the case of German stocks that are listed in the German Dax stock index, this could be, for example, shares in the sporting goods manufacturer Adidas, shares in the major car manufacturers VW, Daimler, BMW or the consumer goods manufacturer Beiersdorf; In other words, companies to which many people are at least related.

Basically: At no point should you bet everything on one card. Equity beginners in particular do better with a broadly diversified portfolio of stocks than with a small selection of individual stocks, as this reduces the risk of making losses. Index funds are therefore especially suitable for beginners short ETFs (English for “Exchange Traded Funds”), recommended.

In contrast to conventional equity funds, which are “actively” controlled by an investment manager, computers in these “passive” funds reproduce entire equity indices such as the German Dax one-to-one. That means: the value of the 30 largest Germans increases Corporations on average by three percent, the value of the fund share also increases by three percent.

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

On the one hand, ETFs are inexpensive and, on the other hand, they 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 shares in the 2,500 largest listed companies in the world and thus covers virtually the entire global economy.

Why do I need a separate share portfolio?

A conventional checking account is not enough to buy stocks and ETFs. You need a separate share deposit in which to keep your securities. In principle, you can open a share custody account at any branch bank. In most cases, however, there are annual fees associated with this, which you have to deduct from your return.

It is therefore recommended that you open your custody account with a so-called direct bank on the Internet. As a rule, there are no deposit fees at all, most online deposits are free. When trading stocks, you only incur transaction costs.

As an alternative to direct banks, which usually also offer other financial services such as current or time deposit accounts, you can also buy shares and ETF shares with pure Online brokers to buy. This refers to special financial service providers who specialize in stock trading and also offer securities accounts.

Common online brokers include Onvista and Flatex. Etoro or Scalable

Where can I buy stocks and ETFs?

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

Alternatively, you can buy stocks and ETFs from a direct dealer who holds stocks and fund shares in stock. The main difference between stock exchange and direct trading: The stock 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 when buying shares and is both buyer and seller of shares. In addition, stock exchanges are subject to strict supervision by the responsible 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:

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

Disadvantages of stock exchange trading:

  • Limited trading hours depending on how long the exchange is open.
  • Often the shares cost more than in direct trading because there are additional exchange fees.

Advantages of direct trading:

  • Shares often cost less than on the stock market.
  • The trading hours are longer; you can usually buy shares from a direct trader late in the evening when the stock exchange has long been closed.

Disadvantages of direct trading:

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

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

How do I buy stocks and ETFs online?

Whether you are trading on the stock exchange or directly: if you have opened an online account for your shares, the next steps for buying shares are very easy.

  1. You can easily find the stocks and fund units you want using the search mask for your securities account. 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 corresponding share or the desired fund, proceed to the purchase by entering the order: Only now will you decide whether you want to buy the securities on a stock exchange – or from a direct dealer with whom your direct bank may cooperate.

Find WKN and ISIN: If you do not know a company’s WKN or ISIN, enter the company’s name and the abbreviation “WKN” or “ISIN” in a search engine. There you will find the relevant information.

The most important criterion when buying is the price: even if it only differs in the decimal places for each trading venue or direct trader, you should always choose the cheapest offer.

Important when trading stocks: Buy and sell stocks and ETFs only from Monday to Friday between 9 a.m. and 5.30 p.m. when the Xetra electronic exchange is open. 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?

There is no clear answer to that. Finding the perfect time to buy is difficult. The reason: the future is uncertain. Even stock market experts and analysts cannot make an exact forecast about the development of the markets.

If you are unsure and want to wait for prices to fall and the associated lower share prices, buying in stages is advisable. By dividing your investment amount and investing it piece by piece, you reduce the risk of entering the stock market when the price is too high. This reduces the importance of the entry point. If you want to invest a certain monthly sum in an ETF over the long term according to the same principle, you can also use many direct banks at low cost take out a stock savings plan.

Important when entering the stock market: Only invest money in stocks that you don’t 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 will even out again. That is why stocks are particularly suitable for building up wealth over more than 15 years.

As a beginner, what should I watch out for when buying stocks and ETFs?

As with any product, the most important thing to keep in mind when trading stocks is the price. The value of individual shares can be measured using various parameters. The price development in the past is only one of many factors that is never a guarantee for the future price.

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

Another important factor is whether a company last shared its annual profits with its shareholders through a dividend distribution – and how high this payment was. This can be an indication that you, as an investor, will continue to do so in the future Dividends benefit.

ETFs can also be created using Key figures evaluate. More than with individual stocks, however, investors should find out more about the current fund fees. The so-called total expense ratio, abbreviated TER (English for “Total Expense Ratio”) provides information about this.

The total expense ratio includes all fees that are incurred annually as long as you hold the ETF share. These include administration 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 are 25 cents per year. These are deducted from your potential winnings, you don’t have to pay extra.

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

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