How does the stock exchange work? A beginner’s guide

Are you wondering about the mechanisms of the stock exchange? Learn the basic concepts from broker.cex that will bring you closer to this world of great financial transactions.

Why do we need an exchange?

The stock exchange is a kind of space where companies selling their shares (most often shares) meet – joint-stock companies – and investors ready to buy these shares shareholders – in exchange for the co-ownership of the company.

The stock exchange is also a kind of information agency – it provides information on the economic situation on the capital market and the economic situation in individual segments of the stock exchange.

How are the transactions on the stock exchange?

 

In order to be able to buy shares on the stock exchange, you must open an investment account with a brokerage house licensed by the Polish Financial Supervision Authority. It allows you to store and trade all kinds of financial instruments. An investment account agreement can be concluded at a customer service point or an on-line application can be submitted.

When choosing the second option, the document for signature is delivered by a courier. After opening an account, you should pay a certain amount that the interested party would like to invest. When this is done, you can start looking for ideas to invest money, e.g. in stocks. They are purchased by placing an order – most often via the Internet – which is then sent to the Brokerage House and then to the WSE transaction system.

Two types of expectations meet on the stock exchange. Sellers want to sell shares in exchange for cash, and the buyer cash offers to obtain the right of ownership to the undertaking concerned.

If you want to buy / sell shares, you can use an order with a limit or the so-called an “at any price” order (PKC). In the case of the first one, we determine the number of shares that we would like to buy / sell and the price we are satisfied with.

A PKC order, on the other hand, is a special type of order on the WSE, it has priority over other orders, and is fully executed immediately after being entered into the system. An investor placing this type of order agrees to any price at which it may be concluded, only the complete execution of the order is important to him.

The subject of transactions on the WSE may not only be shares, but also, among others: bonds, subscription rights, ETF units, options or futures contracts.

What is a joint stock company?

 

A joint-stock company is the most highly organized form of a commercial company that has legal personality. It can do business of any size and size. Its share capital is divided into shares of equal nominal value – they all have the same meaning and value. The possible loss of the shareholder is limited to the amount of the share issue price paid or its purchase price on the secondary market, e.g. on the stock exchange. A joint-stock company has the following bodies:

  •  The General Meeting of Shareholders;
  • Supervisory Board, exercising permanent supervision over the company’s operations;
  •  The Management Board of the Company runs the company’s affairs and represents it to third parties.
  • The principles of operation of a joint-stock company, the powers of its bodies and the amount of capital are specified in its articles of association, and in other matters – in the Code of Commercial Companies.

What is action?

Most of the transactions concluded on the stock exchange are shares. This name is defined as a security that confirms a share in the share capital of a joint-stock company. This share depends on the number of shares held. If 100,000 shares have been issued and a shareholder owns 10,000 of them, he owns a tenth of the enterprise.

What privileges does the shareholder have?

Shareholders are the actual owners of the company whose shares they acquired. Consequently – they are entitled to a number of privileges resulting from their position. Belong to them:

  • collecting dividends, i.e. part of the net profit generated by the company, which is allocated to be paid to the company’s shareholders;
  • share in company assets;
  • use of machinery, equipment, real estate, material stocks, manufactured products, which are the property of the enterprise;
  • participation in General Meetings of Shareholders, during which resolutions may be adopted regarding:
  • increasing or decreasing the share capital;
  • making the company public (dematerialisation of shares);
  • sale and lease of the enterprise or its organized part and establishment of a limited property right thereon,
  • purchase and sale of real estate, perpetual usufruct or interest in real estate;
  • purchase of own shares;
  • redemption of shares;
  • conclusion of an agreement between the parent company and a subsidiary providing for the management of the subsidiary or the transfer of profit by such company;
  • use of spare and reserve capital;
  • changing the subject of the company’s activity;
  • adopting a resolution regarding the continued existence of the company in the event of a loss exceeding the sum of supplementary and reserve capital and 1/3 of the share capital;
  • dismissal or suspension of management board members, if the statute so provides;
  • other issues specified in the Commercial Companies Code and the Articles of Association.

Brokers like Plus500 offer stock trading via CFD. Here’s a review to know more: https://www.realforexreviews.com/brokers/plus500 


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