What are shares? - Explanation and definition
The prerequisite for this is a capital increase of a public limited company.
A share embodies the following rights:
- Right to participate and vote (not preferred shares) at the general meeting of shareholders.
- Right to information from the board of directors
- Entitlement to profits (dividend)
- Entitlement to liquidation proceeds
The shares are issued at a certain nominal value. In addition, there is a premium (agio) for issues on the stock exchange. The stock exchange determines the current price of the share during official trading hours by buyers and sellers.
Shareholders participate as capital providers in the form of tradable securities in the company capital (share capital) of a public limited company. The company can thus finance itself through the capital markets. The appropriation of profits is determined by the shareholders' resolution through a dividend distribution.
There are 2 different types of shares: preference shares and ordinary shares.
- Ordinary share: With this share you have a right to vote at the Annual General Meeting.
- Preference share: with this share you have no voting rights, but the investor is rewarded by a higher dividend or other benefits.
The advantages and disadvantages of shares
There are advantages and disadvantages for companies to issue shares. The financing option via the capital market competes strongly with the high set-up costs and bureaucracy.
For investors or traders at https://exnesslatam.com/conversor-de-divisas/, however, there are almost only advantages, since one can profit from companies with little effort. The only risk is the price fluctuations on the stock exchange. As a rule, the stock exchange punishes bad companies and rewards good companies through price valuation.
In English, the order book is also called a "limit order book". Limit orders sit on the various prices waiting to be executed by a market order. For example, a trader says at a price of 105€ I want to sell 20 shares. He places a limit order in the order book. However, the price of the share is not yet at 105, so the limit order is not triggered. Only when the price reaches 105€ can other traders buy the share.
Facts about the order book:
- Market orders buy or sell directly into the limit orders.
- Limit orders sit on different prices and wait for execution.
- If there are no limit orders on a price, the price must change.
- The order book is a "matching machine" between buyers and sellers
Dividends: Are shares the best investment?
In addition to the gains from increases or decreases in the price of shares, dividends are a popular way for long-term investors to build up cash flow. Shares are certainly suitable as an investment for personal capital. Especially with today's low interest rates, shares or certain bonds throw off much more money than a normal bank account with interest.
Dividends (link Wikipedia) are paid out annually, quarterly or even monthly. This depends on the regulations of the laws and countries. The dividend is a distribution of profits to the shareholders. If the company is doing well, it thanks its investors with a high dividend. The dividend can be paid out as a fixed amount per share or as a percentage of the share price. Here, too, there are differences from share to share.
My recommendations for a steady cash flow through stock dividends
There are traders or investors who draw their salary only from stock dividends and can make a good living from it. However, this requires a lot of capital of several hundred thousand euros. A diversified portfolio is built up with companies that pay high dividends. The investor does not only invest in one company but in many different ones. In this way he protects himself against losses. A portfolio of many high-dividend companies is the best option for a steady cash flow with less risk.
- Investing in high-dividend companies
- Spreading capital across many different stocks
- Hedging against high price fluctuations through stop losses
- A share savings plan is also possible with some brokers
