More and more people are choosing to invest in shares to protect their savings or to generate a second source of income, but how much does it cost to invest in the stock market and how much money does it take to buy shares?
There is a mistaken belief that enormous amounts of money are needed to invest in shares. In reality, it is possible to invest in the stock market, starting from a few euros, or in some cases, with a few euro cents, depending on the shares and instruments that are used. Let’s try to understand how much money is needed to invest in shares.
Table of Contents
Difference between shares and securities
To invest in the stock market it is important to have a clear understanding of what shares are, what shares mean and what the difference is between shares and securities.
The term Shares refers to microscopic shares of a company’s share capital, which the company places on the market in order to recover capital for various purposes. Thus including expansion projects, acquisitions or more commonly, financing new projects.
The set of all the shares, that is, all the shares, corresponds to 100% of the company’s capital and, controlling these shares translates into 100% control of the company. It follows that whoever buys shares buys a more or less large part of the company.
Put more simply, by purchasing shares of a company you become a shareholder of that company, with a share proportional to the quantity of shares owned in relation to the total shares of the company.
The term Securities, however, refers to a broader category of financial instruments, which includes Shares, Bonds, Promissory Notes and other documents that confer certain rights on the subscriber.
As we have seen, therefore, Shares are a subcategory of Securities. But this does not mean that all shares are the same, there are in fact subcategories of the same shares, these are in fact divided into ordinary shares and preference shares.
Ordinary shares are those that give the right to vote at meetings and participate in profits. However, they do not guarantee a fixed remuneration. Otherwise, preferred shares give the right to the distribution of dividends, but do not provide the right to vote in company decisions.
How to invest in stocks
As already mentioned, investing in shares can be an effective way to increase your savings. But it involves a series of risks, which is why, to invest in the stock market, you must move with caution.
As we have seen, investing in shares means investing in companies, it means purchasing a more or less large share of the company in which you are investing.
It is therefore important to have a good knowledge of the market, the sector, the company and the platform with which you are investing in. At this point it is necessary to define an investment strategy that allows you to obtain a safe return, through the diversification of investments.
The simplest and safest way to invest in shares, limiting risks to a minimum and having access to a well-defined investment strategy, which takes into account risks, exposures and a good diversification strategy, is by relying on experts, through investment companies and financial brokers.
Turning to an intermediary means entrusting your money to experts whose main interest will be to protect the invested capital and maximize its returns, since their compensation depends on the profits that will be generated. At the same time, however, these intermediaries may require more or less high commissions, and, in some cases, define a relatively high minimum initial investment.
How to buy and sell stocks
If you want to invest in shares, directly and without intermediaries, as we have seen, there are numerous investment tools and platforms, including numerous home banking services, which allow you to invest directly in bora, buying and selling shares, bonds and other financial securities.
Regardless of the title, and the possible passive returns that can be generated by the investment, the basis of every investment is trading. Which, in the specific case of shares translates into buying and selling shares.
These operations can be carried out directly through an online platform or a broker, or indirectly, using mutual funds, robo-advisors or financial consultants.
An important thing to remember, if you decide to invest directly or indirectly, is that any platforms or intermediaries must be authorized and regulated for the functions and services they offer.
Having said this, regardless of the instrument you use, to purchase shares, it is necessary to open an investment account, be it at a bank, a broker or a trading platform, and a capital deposit must be made on this account. Also because, without capital it is not possible to buy shares.
Once these fundamental steps have been carried out, it will be possible to provide the platform or the broker or define together with the consultant some key points in which to intervene, such as setting a limit order, to buy or sell shares only at a certain price, or choosing a “stop loss”, to limit losses in the event of a decline.
How much money do you need to invest in stocks?
Answering this question clearly is not easy, this is because investing in shares involves a series of variables, first of all the cost of the shares, to which add any commissions from brokers or platforms and finally, any taxes on financial transactions.
However, putting taxation aside and limiting ourselves to the purchase of shares, the minimum cost to be able to buy shares, if we consider brokers that allow you to purchase shares retailly, without a minimum investment amount, corresponds to the value of a single share.
This is a parameter which does not resolve the issue much if you consider that a single share of Berkshire Hathaway, Warren Buffet’s holding company, is worth around 172 thousand dollars. While a single share of Singularity Future Technology, a Chinese company that deals with AI and Blockchain, has a market value of approximately 1 dollar cent.
Read also: When to hire a financial professional?