Can Indians trade with Nasdaq

How does the stock market actually work?

Few Germans invest their money in stocks. This is partly due to the constant ups and downs of the stock market, especially after the burst of the internet bubble and the subsequent financial crisis.

However, many interested parties stay away from the stock market due to the lack of financial education. For many it is a complex and opaque place of speculation. But that is not the case: shares are investments in companies and are more lucrative in the long term than all other forms of investment.

With financial education, it is easier to operate successfully on the stock market. So read the following article and learn how the stock exchange works, valuable facts about the history of the stock exchange and the most important stock exchanges.

Get rid of the stock aversion and also learn which 4 steps you have to take in order to be able to trade on the stock exchange ...

Table of Contents

What is the stock exchange?

Basically, the exchange is an organized marketplace where buyers and sellers of assets come together.

Above all, securities such as stocks or bonds are traded on stock exchanges. In addition, derivatives and other forward transactions are also on offer. There are also commodity exchanges where gold, silver or wheat, coffee and crude oil are traded.

However, the traded values ​​are not physically available on the exchange. For example, securities are kept in a so-called collective bank. The sale takes place electronically and is visible as a credit in the respective depot.

All stock exchange transactions are not carried out directly between the buyer and seller, but rather by an intermediary bank or broker.

The history of the stock exchange

The stock exchange dates back to the Middle Ages

As early as the 12th century, traders met on public marketplaces and traded all kinds of goods for the first time, and later also securities.

With the increasing number of participants and the trading volume, fixed rules for trading and a trading building became necessary.

The term “stock exchange” comes from the Belgian city of Bruges. There traders met in 1409 in the house of the Belgian family "van der Beurse" and thus founded the first stock exchange in Central Europe. Further stock exchanges followed in Antwerp, Amsterdam and London. The first trading regulations and stock exchange laws also fall during this time.

In the beginning it wasn't about stocks

For a long time, trading in stocks was not the focus of the stock exchanges. Before that, mainly goods and promissory notes and so-called bills of exchange, i.e. promissory notes that are not tied to specific people, were traded lively.

One of the first companies to issue shares in the broadest sense was the United East India Trade Company. The high production costs for ships and the import of goods from Asia were to be financed by issuing company shares.

Founded as a stock corporation, people who were not traders were also able to participate for the first time. In addition, the shares could later be traded without the company having to repay the capital.

The most important German stock exchange developed in Frankfurt

The first fixed stock exchanges in Germany came into being in the 16th century. Frankfurt was one of the richest trading cities in Germany and developed into an important regional trading center very early on.

The Frankfurt Stock Exchange established itself as the most important German stock exchange, based on transactions with sorts and bills of exchange in the 16th and 17th centuries and with stock trading starting in 1820.

From large and small stock exchanges

Frankfurt still sets the tone today

Today, the headquarters of Deutsche Börse Group, one of the largest exchange organizations in the world, is located in the Frankfurt financial center.

Today's services in the stock exchange business include: shares and futures trading, the processing and settlement of orders, the safekeeping of securities and the provision of market data.

Which stock exchanges still exist in Germany?

In addition to the Frankfurt Stock Exchange including the electronic trading platforms Xetra and Eurex Börse Frankfurt, there are six other stock exchanges in Germany:

  • Berlin Stock Exchange
  • Düsseldorf Stock Exchange
  • Hamburg Stock Exchange
  • Munich Stock Exchange
  • Stuttgart Stock Exchange and
  • Tradegate Exchange, Berlin

Wall Street is the largest stock exchange in the world

Worldwide, however, German stock exchanges only play a subordinate role. The largest stock exchanges in the world come from the USA. The NYSE - New York Stock Exchange, known as Wall Street, is the largest stock exchange in the world. Together with the electronic technology exchange NASDAQ, 2/3 of the worldwide annual trading is carried out here.

Other major exchanges with large trading volumes are the Tokyo Stock Exchange, the London Stock Exchange, the Korea Exchange and the Shanghai and Shenzhen stock exchanges.

This is how the stock market works

Parquet or computer - everything was different in the past

The floor or floor exchange is the classic form of the exchange. These are the places where the dealers meet and deal with their purchases and sales through personal calls. This is done either on our own account or on behalf of customers.

Floor trading takes place on some stock exchanges, such as the New York Stock Exchange, but this is increasingly being replaced by computerized systems

With electronic trading platforms, such as the German trading system Xetra, computer programs take over the calculations and communication. In electronic commerce, all buy and sell orders are entered into the computer system. The trade is processed automatically and the rates are calculated.

In the meantime, the majority of the worldwide turnover in securities is processed via computer-aided stock exchanges. Trading is therefore faster than floor trading, because it takes place directly between seller and buyer and without intermediaries.

Who oversees exchange trading?

On the stock exchange, shares are primarily traded, i.e. shares in companies with jobs and the know-how behind them.

That is why stock exchange trading is strictly monitored by state supervisory authorities (in Germany the Federal Financial Supervisory Authority, or BaFin for short) and by the trading surveillance offices of the stock exchanges. This should prevent damage and manipulation by fraudsters.

3 steps you have to take to trade on the stock market

1.) Find the right broker

Private investors do not have direct access to the marketplaces on the stock exchange. Nevertheless, it is now possible to take part in securities trading quickly and easily. You simply inform an online broker of your intention to buy or sell, who then acts on behalf of the customer. To do this, you first need a deposit.

You can open this inexpensively with an online broker. However, the services and costs offered by the individual brokers differ greatly.

Brokervergleich.de tests the most important online brokers and helps you choose.

2.) Open the deposit and transfer money to the clearing account

If you have decided on an online broker, go to the nearest post office with the completed opening documents and identify yourself with your identity card. Your account will be opened within a few days. Then transfer the money to the clearing account that will be set up next to the securities account for your securities transactions.

3.) Make the right investment decisions

A deposit opening is therefore done quickly. In order to be successful on the stock exchange, however, important basic rules must be observed.

Before buying any individual stock, you should do a thorough study of the company behind it. The company should be profitable, healthy, and solid. The selection process requires a lot of expertise and time.

Investing in funds is easier. There the fund manager deals with the opportunities and risks of individual securities. You can choose between pure equity, real estate, umbrella funds and numerous other funds. The fund should always match your personal risk tolerance.

Another easy option is to invest in so-called exchange-traded funds, or ETFs for short. This type of fund exactly replicates a stock market index. Here you are not relying on the active selection of a fund manager. The big advantage over an actively managed fund is the lower costs.

In addition to the asset classes mentioned, there are numerous other ways to invest your money sensibly on the stock exchange. Here, in the blog, all investment options are presented step by step in detail.