How to invest in shares: Guide for beginners

Did you know that the vast majority of the members of the Forbes 400 list of the richest people in the world have increased their wealth by investing in shares? What you should know is that a lack of understanding of the basics of stock investing and trading can lead to loss of capital.

Since share trading is a tricky business, you need to learn the basics first and know how to find the right shares before risking your hard earned money.

What are shares?

You may have come across the use of the following words in relation to shares - safety and equity. Well, shares are called equity because as an investor you can buy a share in a company.

"Shares are parts of a company in equity form."

It is also called a security because you, as an investor, are buying a part of the company. This means that based on the number of shares you own, you become a part owner of the organisation. In return for the investment, a public limited company pays dividends to all share owners. This dividend depends on the profit of the company. So if the company makes a big profit the dividend will go up and so will the price of the share, because many investors want to invest.

Choose your stock broker

Choosing your first share broker requires a lot of careful consideration. And why? The right broker can help you find the right securities and diversify your investment portfolio without costing you a fortune, while the wrong provider will limit your options.

So if you don't want to be cheated, check out the table below on how to choose a stockbroker.

When choosing the right broker, you should also ensure that it has a solid platform and easy deposit methods like https://online-exness.com/payment-methods/ that will suit your needs as an investor. This should largely depend on your trading frequency, investment strategy and preferences.

The best platform should have a web browser, mobile app and desktop platform. Check out listing of the best online stock brokers. With your new trading account, you are ready to invest in stocks.

What types of stocks are there to invest in?

Stocks are the foundation of an investment portfolio. Over the years, they have outperformed various investment options. To become a well-informed investor, you need to know the different types of stocks.

Ordinary shares

This type of shares entitles the investor to share in the profits of the company through capital appreciation or dividends. It is important to know that ordinary shareholders have pre-emption rights. This gives them the power to maintain equal ownership.

In addition, they have voting rights if the number of votes is directly related to the shares owned. The income from ordinary shares fluctuates with changes in market conditions.

Preference shares

Preference shareholders have a greater claim on the company's equity, but because the share is considered less volatile, they are less likely to make a profit. Preference shareholders are entitled to fixed and regular dividends. Dividends are provided over a period of time, unlike dividends for ordinary shareholders (variable dividends).

An advantage of preference shareholders over ordinary shareholders is that in the event of bankruptcy of the company, preference shareholders are paid out first.