What are Stocks actually?
Anyone who trades or wants to trade on the world’s financial markets should be familiar with the most important financial products and know what he is actually trying to earn money with.
It should be clear to most people that shares are share certificates of a company, but what does that actually mean?
Let’s assume you want to start your own business and need 10,000 dollars to get started.
You could now borrow 10,000 dollars from the bank and would have to pay it back with interest in a fixed period of time.If you don’t manage to generate enough money quickly to pay off your debts, you could quickly find yourself in deep financial trouble.
However, you could theoretically divide your business into 10 parts and sell each of these shares to friends, relatives, etc. for 1000 Euros. In return, they will receive a certificate stating that they own a share of your business. The money you receive in this way you never have to pay back. If an investor now wants to get his money back, he can sell his share certificate. If he is lucky at a better price, if he is unlucky at a worse price.
And it works the same way with large public companies. Investors buy shares in a company in the hope that the company will increase in value.
However, the current traded price of a share is never directly linked to the value of a company, but is determined solely by the relationship between supply and demand.
Stocks, just like futures, CFDs, options, etc. can. be traded with leverage. However, I would advise not to do it.