Munich There are many polls on why people avoid stocks. The most frequently cited reason why they don’t dare to go to the trading floor, in a figurative sense, is the volatility in the markets. No wonder, because the idea that 1,000 euros invested can turn into 500 overnight only appeals to the hardened. On the other hand, despite the crashes in 1987, 2002, 2008, 2020 and many other price slides, stocks and stock funds have paid off more than any other way of investing in the past few decades.
But how can you trade stocks, funds and ETFs, and where? What is important when opening a securities account? How do you deal with fluctuating prices? And how are profits taxed? The editors of the Handelsblatt have compiled all these questions and show what is important in order to start on the stock exchange and be successful in the long term.
Every shareholder first needs a securities account, i.e. the personal platform through which shares and funds can be bought and sold. Share certificates are stored there, no longer in paper form, but virtually. Almost all online and direct banks offer depots, but not all depots are the same, because the offers differ enormously in terms of what they offer and the costs. Generally speaking, stock exchange trading tends to be more expensive for banks that have local branches, while the costs tend to be lower for online banks.
Buy shares online: What online banks like ING Diba or Comdirect offer
Online banks such as ING, DKB, Comdirect or Consors usually offer two things: a free or very cheap current account plus a free custody account. In addition, there are also pure brokers. The money to trade shares or other securities comes from the current account of the respective customer, which is deposited with the broker as a so-called “settlement account”. These brokers are called Onvista, Flatexdegiro or Smartbroker.
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Buy shares online: Neobroker as an alternative
There are also so-called neobrokers, which are aimed at people who primarily trade via smartphone. As far as the fees are concerned, they are usually even cheaper than the direct banks. The depot does not cost anything with them either, provided the customer places a so-called order at certain intervals: This means that he buys or sells securities such as shares.
>> Read also: Questions and answers on the interest rate offer from Neobroker Trade Republic
The difference to the direct banks is similar to that between food retailers and discounters: Both offer groceries, but the discounters do not offer all types of food and you will look in vain for certain exotic foods. You pay significantly less for most products.
How do I open a depot?
Once you have chosen a provider, you register. This is done in the following steps:
- First, you usually have to answer a few questions about your risk appetite.
- Then it is necessary to identify yourself. This now works with most banks and brokers as part of a video call in which you register using your ID card.
- The access data will then be sent by e-mail or post. Once you have received it, the depot is ready to go.
The first trade: How to buy shares, funds and co.
When it comes to buying securities, this is often described with the English term “trading”. Most online depots offer the option of searching for shares by name, i.e. with a so-called order mask. But before that, there are a few things to explain:
In order to find securities, you need the securities identification number (WKN) or the international identification number (ISIN). The WKN is a six-digit code for a specific security. However, the global standard is the ISIN.
The institute issues an ISIN for the issue and management of securities in Germany. The WKN is still used at the same time, it is also included in the ISIN.
ISIN and WKN are so important when buying shares
The importance of ISIN and WKN can be seen when searching for funds and companies that have the same name but have little to do with one another. Merck is such a case. Before World War I, Merck was a single company. In the turmoil of the war, it became a German pharmaceutical company and an American one.
Today, the corporations no longer have anything to do with each other in terms of corporate law. But if you enter “Merck” in the search field, you will see two shares that differ in ISIN and WKN. Which stock stands for the American and which for the German company can be seen particularly clearly from the ISIN. One starts with DE for Germany, the other with US for the USA.
Why it matters which stock exchange you trade shares on
Once the desired stock, fund or ETF has been found, the size of the order is important. Either you specify a specific number of papers that are to be purchased, or an amount for which the papers are to be purchased. After that, the investor has to decide where to buy the share. Because most shares can be traded on several stock exchanges.
>> Read also: How does the stock market work?
If you are unsure, you should rather choose Xetra from the Frankfurt Stock Exchange for German shares, because a lot is traded there. The more is traded on a stock exchange, the faster prices are set. How quickly you can act also depends on the company. The stocks of tiny companies often don’t trade as frequently as the stocks of giants like Apple or Allianz.
Buying shares: What order types are there?
After the exchange has been determined, it is a question of how the order should be executed – here it is advisable to select “cheapest/best”. In this case, the buy order is executed at the currently most favorable price. Sell orders are executed at the highest price. With a TAN, the order is triggered for a fee, and a little later the share is in the depot.
Funds and ETFs are bought in a similar way, some brokers also offer a fixed price deal. Unlike other securities, it may be that a sales charge of three to five percent of the invested amount has to be paid for the shares. However, many brokers also offer certain funds and ETFs without an entry fee; Investors can usually find out what these are on the bank’s or broker’s website.
How secure is a depot?
Securities accounts are not subject to deposit protection like savings or current accounts; they are to be regarded as safe deposit boxes, the contents of which the bank is not allowed to access. The depot can also be changed at any time. In this case, the bank is obliged to transfer the securities to the new bank within a certain period of time.
Which stocks are worth buying now?
Whole libraries can be filled with how to recognize whether a share is cheap. But there are a few metrics that professional investors look at in particular when deciding whether to buy the stock.
In the coming weeks, read more about metrics that matter when buying and selling stocks. The following articles are not a recommendation to buy or sell the stocks discussed. They can be a starting point for further research.
Real losses and book losses in stocks
It may sound terrible when the Dax collapses by 20 percent within a week. Many journalists then calculate how many billions of euros are now gone with this price slide. Even if this crash shows up in your own portfolio: only when you sell the crashed shares have you actually suffered the loss. If you do nothing, you only have so-called book losses. They don’t hurt at first, and you have the chance that the shares will recover.
Conversely, this does not mean that you should hold stocks stubbornly. If a company is slowly going bankrupt, it makes sense to part with the stock sooner rather than later. In a crash like in the time of Corona, many shares in healthy and profitable companies also crashed. When panic breaks out, which is a stock market crash, investors and computer systems sell everything, whether it’s a good stock or a bad stock.
Tax on shares: what should be considered?
Since 2009, investors have had to pay capital gains tax on capital gains or dividends – so-called capital gains. The following is deducted from the total investment income:
- Capital gains tax (25 percent)
- solidarity surcharge
- church tax
As an example: For every euro that investors earn, around 27 cents remain with the tax office. The lion’s share of this, 25 cents, is accounted for by the capital gains tax, the rest is accounted for by the solidarity surcharge and the church tax.
>> Read also: When investors pay tax on profits from shares
As a rule, capital gains tax and solos are deducted directly by the bank. Therefore, this tax is often also called flat rate withholding tax. Anyone who has informed the custodian bank or the broker of their denomination will also have the church tax deducted.
Which prizes are tax-free?
Since January 1, 2023, singles have been allowed to earn up to EUR 1,000 in profits with shares without paying taxes in the form of the withholding tax. In the case of married couples, the tax allowance doubles to 2,000 euros. Only every cent that exceeds the stated allowances has to be taxed. For the stock sale exemption to apply, investors must issue an “exemption order” to their broker.
But anyone who invests reasonably successfully will soon have left this limit behind. Not only capital gains are taxed, but also interest and dividends. However, if you sell a share below the value at which you bought it, you can offset the loss against the profit from another share transaction and thus save on taxes. If this happens within the same year and the same custody account, the bank automatically offsets the amounts.
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