Deep dive into the share markets

Share markets: not as scary as they sound

Thanks for sticking with us through day two's lessons on risk. We know you’re here to learn about the share markets, and now, we deliver. Today, is a share markets 101: what they are, how they work and what you need to get started (spoiler: it's not what you think).

Answer: A

They’re all the same thing.

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A ‘share market’ is the same thing as a ‘stock market’ and ‘stock exchange’

Jargon is something you have to get used to in finance (it’s annoying for everyone!). Let’s focus on what they are: Share markets allow people to buy and sell investments – most commonly, shares, which give you a ‘share’ of ownership in a public company. You’ve likely heard of the New Zealand Stock Exchange (NZX), Japan’s stock exchange, the Nikkei, and the New York Stock Exchange (NYSE), but there are many, many more.

Jargon alert!

  1. Stock exchange: A marketplace to buy and sell shares in public companies. AKA share market, stock market.
  2. Private company: A company that picks who can own its shares (i.e., your local takeaway shop). Virtually every company starts by being privately held.
  3. Public company: A company any member of the public can buy shares in (generally through the share markets, think Spark or Air New Zealand). A company usually ‘goes public’ by listing on a share market.
  4. Stocks:  When a company sells a portion of its ownership, it does so by issuing ‘stock’, a finance term people use interchangeably with ‘company’ or ‘shares’ when it comes to investing (i.e., “I’m investing in Apple” means the same thing as “I’m buying Apple stock”).
  5. Share: Stock in a company is divided up into shares, which you can then buy (i.e., “one share of Apple stock”).
  6. Ticker symbol: A collection of letters that are a unique code for a particular stock. For example, Apple is APPL, and Tesla is TSLA.

* Companies referred to in this course are referred to by way of example or illustration only. We don’t provide any opinion or recommendation on the buying or selling of any financial products.

How do share markets work?

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How do the share markets work?

Answer: A

The share markets work like any other marketplace.

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The share markets are a great big auction for shares

Think of it like chocolate. If you have 10 bars that you bought on your Swiss holiday, you could come home and list them on Trade Me or eBay for $2 each. One or more buyers will agree to pay you $2 for each block and when the deal is done, we call it a ‘trade’. It’s really no more complex than that.

And just like you have to open a Trade Me account to buy or sell Swiss chocolate, you have to open a brokerage account to buy or sell shares.

Jargon alert: Brokerage account

A Broker is a company that connects buyers and sellers on the share markets. You open an account with them so when you place an order, they can match it with someone else on the share market, and complete the trade.

How do I place an order?

Answer: D

You can buy shares on your own or through the services of a financial advisor - suits are optional :)

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You got options!

In the old days, buying and selling shares was a very manual process. You would call a human broker, they’d yell down the phone at another broker and cut a deal, and you’d pay them a decent chunk of money for their time. These days, it’s usually done online and is afar simpler (and cheaper!*) process.

There are a lot of laws in place that are aimed at protecting you and your money. When you sign up to use a share trading platform, you have to verify your identity before you can deposit money into your account ready to invest (the good news is, Hatch makes this very easy and you can do it all from your phone or computer).

OK, but how do you actually buy shares?

When you have chosen shares you want to buy, sign into your brokerage account and place an order, in much the same way as you’d place an order for shoes online. Behind the scenes, your broker automatically matches your buy order with someone else’s sell order and voila! You own shares. Most brokers charge a fee when you place an order, and later we’ll go over how this impacts your investing.

DIY not in your DNA?

Another plan for you may be that some companies offer a ‘full brokerage service’. They help you choose shares and manage it all for you... but you should ask what the fees would be before committing and see if that works for you. It can be a pretty prohibitive option for people who are just starting out with only small amounts to invest. Opening a digital brokerage account, a course like this and Google may just take the sting out of getting started. If still unsure, you can always talk to a licensed financial adviser.

How do you even decide what to buy?

Answer: E

There are no prerequisites for getting started today.

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Anyone can invest

Tomorrow, we’ll start talking about your share market investment options and give you some tips on what you need to know to get started. All you need to keep in mind now is you should challenge everything you’ve ever thought about the amount of research you need to do and the amount of money you need to invest.

Food for thought

Food for thought.

Maybe you're feeling ready to take your first baby step towards investing. If you are, then think about creating a Hatch account, verifying your identity, and getting started!