The concept of the stock market is not clear to many, despite the fact that everyone has heard of the stock market. In fact, most people have come into contact with it in some way, since everyone now has, for example, Revolut, but I could also mention a few other well-known service providers. Then there is the famous forex trading, quite a few people have tried to earn a little money by trading currency crosses on the platform of a forex broker. Of course, “real” brokers often have access to completely different products than their forex counterparts, so we are touching on a fairly broad topic, and we will only scratch the surface of it. However, this is enough to at least give you an idea of what pitfalls to avoid.
🎢Stock market report
What is a stock market? If I wanted to simply answer the question of what the concept of a stock market is, I would say: a marketplace where sellers and buyers exchange various securities and other financial instruments, currencies, indices, commodities, and their financial representations. Of course, today there are not always actual investors and speculators on one side and the other of the stock market. On the one hand, companies can also buy shares, and on the other hand, robots, actually computer algorithms, often trade on the stock markets.
The stock market is generally very strictly regulated, as are stock market transactions. In most countries, brokers only provide access to the securities, while the clearing house handles the records and the money involved in the transaction. The point is that the handling of transactions and the listing of stock market instruments are usually separated to prevent abuse.
To elaborate a bit on the above, the operation of brokerage firms in the United States is based on a similar logic as in Hungary, for example, but the system is a bit more complex and layered, especially at the clearing and custody level. 📊💼
🧑💻 Stock market: brokerage firms – more than just intermediaries
The following is generally true for larger US brokers (e.g. Fidelity, Charles Schwab, Robinhood):
- 🚪 They give you full access to stock exchanges (NYSE, Nasdaq, etc.)
- 💰 They also handle client funds and securities
- 🏦 They work with their own or external clearing companies (e.g. Apex, Pershing)
Smaller brokers prefer to outsource settlement to external partners. 🔁
🧾 Stock exchange: clearing and custody
- 📦 Settlement can be done in-house or with the help of an external clearing broker.
- 🏢 The central player in the entire system is the DTCC (Depository Trust & Clearing Corporation), including:
- 🔄 NSCC – settlement
- 📚 DTC – custody
🛡️ Stock exchange: protection and guarantee
- 🪙 Client assets are protected by SIPC (Securities Investor Protection Corporation).
- 📉 This covers up to 500 thousand USD (of which max. 250 thousand USD in cash), in the event of a bankruptcy.
- 🇭🇺 This is similar to the Hungarian BEVA system, although it does not operate in the same way.
📌In practice: In connection with the above, I would like to mention one big difference, which will be unique to almost everyone else, but the example perfectly holds true in terms of differences in the operation of the stock exchange:
- 🤔Erste Invest (Hungary): Erste Invest is obliged to report the securities in your name to the Hungarian Central Bank (MNB), which you can check from an external source, i.e. not only on the broker's website.
- 🤔Interactive Brokers (USA): IB records the securities under its own name, and within their system they show you what is in your name. This is bad because if Interactive Brokers goes bankrupt tomorrow, you will have to prove what was in your name, since there is no other source from which to obtain it.
As for investor protection funds, their amount primarily applies to cash, since the papers are in your name, you bought them on the stock exchange, so theoretically they cannot be lost.
💡It is also very important that sellers and buyers face each other on the stock exchange, but it does not matter whether you are dealing with a real seller or the broker is on the other side.
We will return to this later in the section on operations, but for now it is enough to note that there can be huge differences between brokerage firms. Let's start from the beginning and see how the stock market as we know it today developed.
📑A brief history of the stock market
The stock exchange evolved from the marketplaces of medieval fairs, where goods changed hands. Since there were no computer networks or even electricity at the time, buyers and sellers had to be brought together in one place. For this reason, fairs were typically held in larger cities. However, as the flow of goods and money increased, this became so large that it was no longer possible to exchange goods smoothly, so substitutes began to be used. The first stock exchange building was built in Antwerp in 1531, but stock market life really came to fruition in Amsterdam in the 1600s, with the trading of shares of the Dutch East India and West India Company. Towards the end of the 17th century, the physical stock exchange and the stock exchange split into two.
The first dividend-paying stock was issued by the Dutch East India Company in 1605 (I wrote in detail about dividend-paying stocks here: Dividend-paying stocks), but this was paid for in pepper, not money. The first bubble mania broke out in the 1630s, the Dutch Tulip Mania, where tulip bulbs were the commodity whose value increased twelvefold in 3 months. At the height of the craze, a bulb called a Switzer was worth 5000 guilders, which at the time was enough to buy a fancy apartment in the center of Amsterdam.
💡The first bearer, i.e. non-registered, freely tradable shares were issued in France in the 1720s, while bonds had to wait about another hundred years.
The mortgage bond was a Prussian invention, and according to historians, it was first issued by Frederick the Great in 1769. The rise in share trading was helped by the advent of the railways in the early 1800s. Most companies were registered as joint-stock companies, which triggered another mania in England. This caused such a crisis that a law called the “bubble law” was passed, which banned the establishment of joint-stock companies in the United Kingdom for 100 years, with some exceptions. Of course, there were a few more manias and bubbles in history.
🏭The dawn of technology on the stock market
Let's jump forward a little over a century and remember the name of Guglielmo Marconi, who was Tesla's assistant and invented the radio, for which he received the Nobel Prize in 1909. The other important invention from the point of view of the development of the stock market is the telegraph, which was introduced by Samuel Morse in 1838. By the end of the 19th century, it was already commonly used for data transmission on the stock markets, thus accelerating the flow of news and stock market trading. The situation is very well presented in the work of Edwin Lefevre (Edwin Lefévre: Notes of a Speculator), a very entertaining and easy read, and also part of the "Investment Classics" series, read it.
In the 1960s, DARPA, a division of the US Department of Defense, began experimenting with distributed, less vulnerable computer networks, which can be considered the predecessor of the Internet. The first email was sent on it in 1972, the military segment was separated from it in 1983, thus paving the way for mass use, and the rest, as they say, is now history. With the spread of the internet, more and more people have joined online brokerage platforms. Buying and selling securities has slowly become a part of everyday life, and today hundreds of millions of average people worldwide participate in trading, making the stock market practically accessible to everyone.
🏦How does the stock market work?
Let's go back a little to the operation of the stock exchange and brokers. Basically, when an investor or a trader wants to buy securities, they have to somehow get to the stock exchange where the chosen instrument is listed. And here begins the first problem, how to access the securities at all, and what can be purchased on the stock exchanges at all. There are basically two ways to buy securities, I wrote more about this in a previous article (Step-by-step process for buying shares (2025)). You can buy directly from the company, but this is complicated and expensive, or through a broker who has access to the stock exchange where the securities are listed.
Fortunately, there is already an article on this topic (Step-by-step process of buying shares). The point is that you have to go to the website of the given brokerage firm, and by entering the unique identifier of the instrument, the ISIN code, in their instrument search engine, you can find out whether the given broker reaches the market where the desired security is listed, but you can also search for the 3-4 letter identifier of the shares, the ticker.
For example, if you want to buy Tesla shares (TSLA), in fact the ticker is correctly NYSE:TSLA, which shows that it is a paper listed on the New York Stock Exchange, then the brokerages have to reach the New York Stock Exchange, otherwise you will not be able to buy the paper. The twist of course is that a paper can be listed on more than one exchange. For example, Alibaba exists on the US stock exchanges (BABA), under the ticker NYSE:BABA, in China, but also in Hong Kong, 9988.HK, so take a good look at exactly what you're buying.
🧮What financial products can be purchased on stock exchanges?
The answer is, anything. What doesn't exist today, but is in demand, will be created for you tomorrow. The explanation for why is relatively simple. After buying and selling each instrument, brokers collect a trading fee and also skim the difference between the buying and selling price, the spread. The higher the volume and frequency of trading, the more commissions they can earn, so it is in their interest to see as many transactions as possible. I should mention here that a concept very closely related to the stock market is “stock trading”, which in common parlance seems to be an extremely risky activity.
🎯That is why you need to mentally separate the activities of investing and trading. The former is a precisely planned, strategically executed purchase and sale that is planned for a longer period of time. The latter is speculative and thinks in a much shorter term, basically taking into account market sentiment and movements. This also requires a well-structured strategy, it just uses different tools and instruments. That is why it is good to know roughly what instruments you can trade on the stock exchanges..
📊Stock market instruments
The following are typical financial products that can be traded on stock exchanges. Of course, there are countless other things you can run into when trading with brokers, but the following are the characteristics:
📰Stock exchange: products
- 📈stocks: Securities that provide ownership rights, by owning them you become the owners of the companies. Basically, these are stock market products, but there are also small-cap companies, pink sheet companies, that are traded outside the stock market, on the OTC market.
- 📉ETF funds, indices: ETF stands for exchange-traded fund, usually comprising stocks of a sector. You can also trade an index that reflects a given stock market in the form of an ETF. We wrote about ETFs in detail here: ETF meaning and usage
- 💹bonds: a debt security that pays interest and has a maturity date, at which time the debt is settled based on the face value. Government securities and discount treasury bills are also special bonds.
- 💰currencies: Electronic versions of national currencies. FX or forex trading refers to the trading of these currencies.
- 🧮options transactions: Options, in short, are futures economic contracts that give one party the unilateral right to buy or sell a given asset.
- 🧪Certificates: original meaning certificate. The issuing financial institution guarantees that its price will follow the value of the underlying product, e.g. commodity products, in some specified way. It does not have the same rights, e.g. in the case of shares, it does not provide ownership rights as the underlying product. A warrant is a leveraged certificate.
🚫📈Non-exchange products
- 🔕Cryptocurrencies: blockchain-based, decentralized virtual assets that also act as money substitutes.
- 🔕CFD trading: A derivative product that allows you to trade without owning the underlying product. In essence, you are placing a bet with a broker on the future price of a product.
- 🔕NFTs: non-substitutable, blockchain-based electronic fingerprints that prove the origin of an electronic “object”.
🪤Where is the trap?
So far, I have intentionally not defined what constitutes a stock exchange transaction, as this is a very well-defined and regulated thing. Officially, such transfers are called controlled capital market transactions (CMTs), and such transactions can only be carried out with instruments traded on an official exchange. These are well-regulated marketplaces with legal remedies, greater oversight, and a more developed legal framework.
Unfortunately, all sorts of marketplaces and organizations are called exchanges and brokers, even those that don't fall under the aforementioned regulatory environment, which is a bit misleading. Anything that is not traded through a traditional stock exchange transaction is called OTC, over the counter, trading, which is not subject to the CMT rules. Of course, this still means that marketplaces are still called OTC exchanges, and the providers of such trading are called OTC brokers, meaning you have to pay close attention to exactly who you sign contracts with and what kind of contracts.
❗Cryptocurrencies, NFTs, and CFDs are not exchange-traded products. Forex brokers are not full-fledged brokers, and often do not access the original stock market instruments, but replace them with others, and this can take us back a little to what is happening on the stock market.
🏦This is how the stock market works
First of all, it is important to clarify that today, stock exchanges operate practically 99% online. There is no longer any running around on the floor with notes, shouting, or waving in front of the board with the exchange rates, but this would have been a completely common sight twenty years ago. However, today everything is credited electronically, practically computers exchange data with each other.
The stock exchange operates by trading registered instruments, which for simplicity's sake will be called shares, between sellers and buyers. This happens roughly as follows:
- 🙅The seller offers the stock for sale at the offer price he or she determines. This is entered into the order book, which contains the buy and sell offers.
- 🙅♂️at the same time, a buyer establishes a purchase price for the share he wants to buy, which is also added to the order book
- 🙅♀️if the prices are the same or close enough to each other, e.g. a sale of 80 USD and a purchase of 81 USD are received, the demand and supply meet within the order book, the security changes hands
🤔What is happening in reality?
As you can see, in this case, the broker only provides access to the market, is an intermediary, not an active participant in the transaction, buyers and sellers conduct their transactions between themselves, as if they were bidding for a product at an auction, so the order goes directly to the market.
Of course, the above only happens in an ideal world. In reality, it is very rare that someone wants to buy and sell exactly the same number of shares at the same price. In such cases, several things can happen if there is sufficient liquidity, i.e. there are many offers, sellers and buyers, and the offers are close to each other, the demand and supply sides are balanced by a relatively small margin, and the price does not change substantially.
👱♀️/👱♂️If buyers are in the majority and sellers are in the minority, this will drive up the price, while in the opposite case, with a sellers' majority, the price of the instrument will fall.
Let's stick to the ideal case, when buyers and sellers are roughly in balance, in which case orders are filled with a small difference. The “small difference” is the commission that the broker pockets, since he has to make a living from something. You can check this as a layman on any bank website. Moreover, when you go on vacation, you also suffer from the difference between the buying and selling rates during currency exchange.
🙈What is happening in the OTC market?
The other possibility is that it is not the sellers and buyers who find each other, but a software, a market maker, that steps in and sells or buys the instruments, pocketing a larger fee on the transaction in return. In this case, the order does not even reach the stock exchange, but the broker or bank uses its own capital to cover the transaction.
⛔This means that you are entering the market against the buyer or seller, and this is where the problem begins. If the client is facing the financial institution itself, the order does not reach the market, then the two parties become at odds. This is easy to see, since the client is better off if there is only a 0.1% cost on the transaction, while the broker is better off if the cost is, say, 0.2%.
This will result in higher costs on the client's side, because these types of providers are often more expensive, and these brokers are much less regulated by supervisory bodies. It is also possible that they do not have a normal supervisory body. Therefore, you should always check the given broker, because this alone can lead to many conclusions.
⏳What time is the stock market open?
You can't always trade on the stock exchanges. Basically, we tend to consider American markets as authoritative because more than half of all world trading takes place here. Just like a store, the NYSE, NASDAQ, and all other stock exchanges have opening hours, which are determined by American time. Officially, the NYSE and NASDAQ are open from 9:30 AM to 16:00 PM, weekdays, according to Eastern Standard Time, also known as New York Time Zone, which is converted to Central European Time, or CEST.
American stock market opening hours, European time (UTC+2):
- stock market opening: 15:30
- stock exchange closing: 22:00
There's a nice counter that shows the time remaining until closing: NYSE Trading HoursIn addition, you can trade for 4 hours before and after the market opens, this is the pre and post market period, but not all brokers allow you to quote prices here.
📱What does the stock market look like in the age of app-based brokers?
Since online, app-based, “free” brokers are incredibly popular these days, it’s worth talking about them a little. Several factors have contributed to their spread, one of which is that it’s now possible to invest small amounts with the “tap” of a phone app, which is mostly due to the flourishing of fintech companies. The other is that it is possible to invest with small amounts because you can buy and sell fractional shares, so you can start trading with just a few dollars. This has enabled companies to reach huge audiences, so they are now happily "stock market" owners, at least in the developed world. Examples of such companies include: Revolut, Plus500, free trade, Robin hood, Trading212, Etoro.
It is also important to note that these trading apps are designed to be extremely easy to use, you don't have to learn complicated broker software or understand these interfaces. The third reason is that these are so-called “no commission” companies, meaning they do not charge a commission on transactions. This obviously seems very attractive at first, but this is also just a trap that people typically don't see through. There is another reason why the above companies are popular, the typical “mania” instruments, e.g. cryptocurrencies and NFTs, can also be traded on their interfaces, which are not by chance so popular.
📌In practice: Simplified interfaces push people towards simpler thinking, which requires simpler mechanisms and creates a kind of housewife stock trading. This is manifested, among other things, in the fact that people follow fads, the holding period of stocks is decreasing, and investors are not making decisions based on fundamentals as much. However, if you want to delve more deeply into stock analysis, for example, or need more serious data, these platforms will not be suitable for this, but Interactive Brokers is.
🆓Are stock brokers really free?
To answer the question in one word, no. To understand why this is the case, we need to look at brokers' fees.
- 🎁Costs associated with maintaining an account
- 🎁other expenses
- 🎁Trade related items
The above order is not accidental. Usually, discount brokers, such as LightYear or Interactive Brokers, make account opening free or tie the free account to account size, portfolio fee, etc. App-based brokers almost always offer free access to the markets, but it's not really a significant cost for someone with a normal sized portfolio of $50k. It's a recurring monthly expense, usually no more than a few dollars.
Other costs include transfer costs, currency exchange costs, costs of various order book services, and the like. These can typically be found on the broker's website in a tabular format. App-based brokers usually make these free, but almost every service provider has a classic rip-off trick that the deposit is free, but the withdrawal has a significant cost. These are also relatively easy to track.
🔓This is the point: the costs associated with trading
The catch is that the costs associated with trading are almost always higher with so-called “free” brokers, especially when it comes to margin requirements. You can usually expect the following fees:
- 🪙Forex exchange margin: If you earn income in currencies other than USD or EUR, you will need to convert it. If you are considering the aforementioned 50 USD portfolio, then taking into account the 0.5% cost, this means a cost of 150-250 USD.
- 🪙currency exchange commission: The above exchange usually has some kind of commission, say 0.3%, or a limited amount, until it is free, and then you have to pay a commission, which is another 90-150 USD cost. There are other costs, e.g. exchanging on weekends when the market is closed, this is also applied by Revolut.
- 🪙the cost of buying and selling (commission): When you buy or sell a security, there is a cost. For Interactive Brokers, it is about 0.005/share, but a minimum of 2 USD per purchase or sale, calculated for US stocks.
- 🪙spread: This is the cost that appears in the difference between the buy and sell price, also called the “spread”. Exactly how much this is can be determined by many things, e.g. illiquidity, extreme volatility, etc. It is precisely the spread that tends to be higher with “free” brokers, because it is not visible at first, meaning that the total cost can easily be higher than with their traditional counterparts.
- 🪙others: Not everyone will come across it, but there is also a swap, which is an exchange transaction, hence its name, that is usually, but not exclusively, charged when foreign exchange transactions are held overnight.
It is in the broker's interest to see as many transactions as possible, so they typically print advertisements and make recommendations that motivate traders to do so. Since the spread varies, it is quite difficult to keep track of how much is too much, and a "housewife" type of trader doesn't really look at them.
📌In practice: At the end of every year I usually check how much it cost me to invest and maintain accounts with my brokers. The average was usually 200-300 USD/year, then I got bored and wrote them a thunderous letter asking them to waive the fees, otherwise I would transfer my shares. And whoops, the cost has already decreased. It's worth trying for you too.
✨Stock market: alternative sources
There is a source of income that is not typical for traditional brokers. Bored citizens were locked in their homes by the 2021 COVID pandemic, and the state gave them money to “keep themselves busy”, so they went to do some stock trading. And this crowd of millions really moved the market, generating a lot of trading data, which, for example, Robinhood simply sold to other service providers. There is a good English saying about this: "If You're Not Paying for the Product, You are the Product."
You also have to take into account that most app-based platforms have packages that limit the number of trades, the amount of currency that can be converted, or otherwise restrict them, a good example of this is Revolut. Naturally, unlimited packages are available for extra money. Of course, many people don’t pay this, unless they are caught by FOMO, the feeling of missing out. Then everyone subscribes to everything, regardless of how much it costs, because “the huge profits will cover it anyway”. This again favors the broker.
💳Is it worth choosing new wave brokers?
This is a matter of perspective, as can be seen from the above, there are no free brokers, this is not the Maltese Charity Service. A much bigger problem is that a lot of exchanges will not be reached or some services will not be provided. A good example of this is the existence of various tax savings accounts, e.g. the Hungarian TBSZ, the English ISA and the like. For example, American dividend-paying stocks will often be subject to additional tax, and a tax return must be filed, meaning they involve a lot of hassle, which can be expressed in terms of time and money, and can also be listed among the opportunity costs.
It is also a question of which stock exchange supervision the given service provider is subject to, and how much money is in the investment protection fund there. If there is a lot, or the protection threshold is higher than where you live, then that may even be an advantage over domestic service providers. However, if there is a problem, you can write a letter to the foreign supervision in a foreign language, which many people will not be able to do due to their lack of language skills. On the other hand, it is positive that these new apps have a normal interface and are transparent. They are not like, for example, the clients of old-school brokers, which look as if they were carved with a stone axe. Obviously, Revolut is much better for dice traders than for a more serious, big-money, long-term investment “expert”, but they are not the target audience. So it is not possible to clearly state that these are better or worse than their bigger-name, older counterparts.
📌In practice: In practice, the costs also change as the portfolio size increases. For example, if your portfolio grows from 100 USD to 500 USD, the holding fee will hurt much more than the buying/selling commission paid for very low stocks. The same is true, for example, if you take many small or fewer but large positions, the math simply works out differently. In the case of ETFs, this can be especially bad, because there is an annual maintenance fee, which, despite being 0.1-0.2% per year, will cost you 500-1000 USD per year. It is usually cheaper to buy stocks than this, but with a smaller portfolio size, the situation is reversed.
❓Ask these questions
Before deciding which provider to choose, it is very important to do your own “homework” and write down your answers to the following questions:
- ❓What do you want to do on the broker's interface? Speculate, trade at high frequency, or invest for the long term? The former involves much more and more frequent buying and selling than the latter.
- ❓What financial instruments do you need and which markets do you want to access? Do the providers have access to the stock exchange you need?
- ❓How much does the above activity cost? The easiest way to achieve extra profit is to reduce costs.
- ❓How easy is the interface to use? Open a demo account and check out the systems, because sometimes I'm amazed at their quality too.
🧐Stock market for beginners: what should I invest my money in?
This is a classic question in every article of this type, and I will give a classic answer: Invest in yourself. Learning is the best way to eliminate mistakes, and until you have a basic understanding of how the world of investments works, you will get brutally beaten. So one of the best investments is self-education.
Some tips to reduce the risks:
- 🧩Once again: learning, self-education, you can never say it enough
- 🧩Decide what you want: either you trade in the stock market, speculate, which involves frequent, even intraday trading, or you invest, then you buy instruments for 5-10 years, which involves relatively little buying and selling.
- 🧩Diversify: It is worth thinking in terms of 20-30 stocks when building a portfolio, this significantly reduces the risk of individual stocks. You can also diversify by asset class, e.g. stocks, bonds, gold, etc. There are dozens of books about such techniques.
- 🧩Portfolio size: Never invest money that you will need in the near future. But you should not invest too little either, because then you will not have a visible return and the costs will also increase in relation to the capital.
- 🧩Write down your investment to zero. Imagine that the money you invested yesterday will suddenly be worth zero tomorrow, meaning you will lose 100% of your capital. What do you feel now? Pressure, stress? Does it bother you or not? What will your family say? In the case of startups, this is a phenomenon that occurs in a ratio of 10:9, for example, and I have written several articles about it (Startup investments).
- 🧩Stock trading requires a stomach, not a head. You have to handle the pressure, but it's very difficult to assess where the threshold is, beyond which you can no longer think clearly and start to panic.
- 🧩Conviction: I think it takes 1-2 years for this to develop, until you get a feel for what you are capable of blindly believing in. When my Alibaba position fell by 50% (BABA), I was not embarrassed then either, because I was convinced of the correctness of my decision. Be thorough rather than quick, but stick to your decision if you consider it well-founded.
🎁Is stock trading the best investment?
This question is regularly asked by people who are just getting to know the subject. Historically, it can be said that the US stock market can show a return of approximately 9.5-10% per year, in dollars, over a century. However, this is not a real return, as inflation and a few other things would have to be deducted from this. However, if I say that since 1989, for example, the USD has increased by about 500% compared to the HUF, then that sounds different. In the long term, real returns can be achieved in the stock and real estate markets, but no one knows how, for example, bitcoin or NFT will perform in the next 20-30 years. Since these instruments have no historical past, this question cannot be answered at the moment.
However, there have been a few stock market success stories recently that I think are worth sharing with you so you can see what you can roughly expect. But it's important to know that we're looking back at the past, so it's easy to be smart. The stock market, on the other hand, prices the future, so no one can say where prices will move tomorrow. Therefore, when making a decision, always remember that events that happened in the past do not guarantee that they will be repeated in the future.
🏡Real estate crisis
In March 2009, the US stock market index, the S&P 500, fell to around 750 points. This was the low point of the real estate crisis. At the beginning of 2014, it was already at 1800 points, or a 240% increase in 5 years, which is equivalent to a 48% annual return. This is well above the 10% annual return, so everyone started to worry that a serious crash was coming soon. Then another 6 years flew by, and nothing in the world happened, the stock market index continued to soar, to over 3300 points, or a 440% increase compared to the 2009 low. That's still 40% per year, so this 11-year period became the stock market's worst long-term increase. How much is it now? At the time of this article's update, on 2025-07-24, the S&P 500 price was at 6359 points, an increase of ~850% in 16 years.
I wrote the above because everyone usually remembers this, since it wasn't that long ago. It's also called the subprime mortgage crisis, and the movie The Big Short is about it (T). But what happened before that? They say things like there was a dotcom bubble and stuff like that. But who remembers what the returns were like in the decades before the real estate crisis? Yet between 1999 and 2009, the S&P 500 index managed to generate a return of -9.1%. This means that investors watched their invested money slowly decrease over 10 years. It doesn't seem so harsh when you put it that way, but when you wake up day after day for years to find that the value of your portfolio continues to fall, many people will throw in the towel.
😷Stock market and the COVID pandemic
The COVID pandemic crushed the market in March 2020, with the S&P500 falling to 2200 points from 3400, a drop of about 30%. By September 2021, it had rebounded to 4500 points, ~200% of the low. In other words, investors were on a real roller coaster ride during this year and a half, and the seemingly cheap market became terribly expensive again. I would like to highlight two things, which brings us back to the premise of this paragraph: “Is stock trading the best investment?”
I have written two articles about oil stocks before (OPEC, oil stocks, oil companies, Playing Oil with Oil Stocks), whose prices have plummeted, the market has practically priced them as if the world would stop consuming oil tomorrow. For example, Exxon Mobile (XOM) fell below 34 USD, now it is around 110 USD, and the other oil companies have fallen even more. Who would have believed that these companies were over? Based on the selling wave, quite a few of them. So in just over a year and a half, they could easily have doubled, which is +50% even on a two-year average, which is five times the average return over many decades. That's not bad, right?
The price of REITs, or real estate companies, and especially mall operators, also fell like a stone thrown into a well, as they had to close due to the pandemic. These were also very undervalued by the market. The price of Simon Property Group, one of the best quality (mainly A+ rated) premium shopping mall owners (SPG) also looked below the magical $45 level. It is currently trading at ~166 USD, which is a more than 200% increase, meaning the annualized return was well over 100%, but the paper has been sideways for some time. Of course, these are not real “stock market tips”, but they do show that the market offers opportunities.
🧑🤝🧑Stock prices on iO Charts side
iO Chartswas created precisely to make it easier to access and sort data for a given company. Since most investors first look at the price of a given stock, we have listed this on the first page, but countless other data are also available if you scroll down or click on the menu items above the “stock information” header. These act as jumping points and take you to the given category.
Of course, you can also sort the data by time period, and you can also save the drawn graph by clicking on the small image icon. I would like to highlight one service, which is also available for free, which I have not seen anywhere else, and these are the individually created, hand-generated graphs. In the case of stocks that are close to our hearts or that are popular in the world for some reason, we have also created special data sets. These are tied to some specifics of the company. For example, Tesla (TSLA) you could see colorful charts about car sales and much more, while Pfizer (Pfe) we show how much COVID vaccines contributed to the company's revenue growth.
Stock market: summary
We have gone over one of the most important topics, so this article is actually a supplement to two previous articles: American stock exchange information, opening hours and Meaning and use of stock index. These three articles cover enough of what you need to know at a minimum before you jump headlong into the world of the stock market. The most important thing is to approach trading or investing with a specific strategy, follow the rules you have set, manage the risks and don't panic. You know, stock trading requires guts and not brains. Until the next article, I wish you much success and successful "stock trading" iO Charts team.
Frequently Asked Questions (FAQ)
What is the stock market?
A stock exchange is an organized market where stocks, bonds, commodities, and other financial instruments are traded under a regulated framework. Its purpose is to bring investors and issuers together, providing transparent pricing and liquidity for market participants.
How does the stock market work?
A stock exchange is an organized market where buy and sell offers meet and shares, bonds, commodities or other financial instruments are traded. The essence of its operation is that investors and speculators can buy and sell assets based on real-time exchange rates, while supply and demand continuously shape prices. Transactions are carried out within a regulated framework, through brokers or online platforms, and clearing is carried out by clearing houses. The stock exchange is therefore not only an opportunity to make money, but also one of the most important engines of the economy, helping companies raise capital and invest savings.
What are exchange-traded funds?
Exchange-Traded Funds (ETFs) are investment funds that can be traded on an exchange just like a stock. An ETF holds multiple stocks, bonds, or other assets at once, providing a diversified portfolio with a single purchase.
These funds usually track a specific index (e.g. S&P 500, FTSE All-World) and aim to replicate its performance as closely as possible. The advantages of ETFs are that they are cost-effective, liquid, transparent and available for a small amount. They are ideal for investors who want broad market exposure quickly and easily.
Who is a broker? The concept of a broker
A broker is an intermediary person or company that buys or sells financial instruments – such as stocks, bonds, currencies or funds – on behalf of clients on the stock exchange or other markets. The broker does not speculate with his own money, but carries out the transactions for a commission or fee.
It can be:
- 🧑💼 Traditional broker: provides personal advice and comprehensive administration
- 📱 Online broker: provides independent trading via a digital platform (e.g. Revolut, eToro, Interactive Brokers)
Additionally, some brokers also offer portfolio management, analysis, or financial advisory services.
What does certificate mean? What does CFD mean?
📄 Certificate meaning
A certificate (or certificate) is a structured investment product listed on an exchange, the value of which follows the price of a given underlying asset – such as a stock, index, commodity or currency. Certificates can be capital-protected, yield-limited or even leveraged, depending on the purpose for which they are designed. Their advantage is that they are easily accessible on the stock exchange and can be used to speculate on direction or reduce risk. Their disadvantage is that they can be complex and carry issuer risk – that is, if the issuer becomes insolvent, it may result in a loss for the investor.
💹 CFD meaning
A CFD (Contract for Difference) is a derivative instrument that allows an investor to speculate on the price of an asset without actually owning it. A CFD pays out (or deducts) the difference between the opening and closing price, whether you bet on an increase (long) or decrease (short). It often uses leverage, which increases the potential for profit – but also for loss. CFDs can be traded on, for example, shares, indices, commodities or cryptocurrencies. The advantage is flexibility, the disadvantage is high risk.
New York Stock Exchange Opening
The New York Stock Exchange (NYSE and Nasdaq) officially opens Monday through Friday at 09:30 a.m. Eastern Time and closes at 16:00 p.m., which is between 15:30 p.m. and 22:00 p.m. Central and Western European Time. This period is called normal trading hours, but there are also pre-market and after-hours periods during which trading can still be done through certain brokerage firms, but with lower liquidity and higher risk. The exchanges are closed on weekends and U.S. public holidays.
The US stock market opening time actually refers not only to the New York Stock Exchange, but also to the Chicago Stock Exchange, as all US stock exchanges open at the same time. The Forex market is open 24 hours a day, Monday through Friday, with trading hours staggered based on the world's major financial centers. The market opens on Sunday evening at 23:00 PM (Sydney) and closes on Friday evening at 22:00 PM (New York).
The Forex market (foreign exchange market) is technically not a classic stock exchange, as it does not have a central trading venue like the New York Stock Exchange (NYSE). Instead, it is a decentralized, global network where trading is mainly done through banks, brokers, and electronic platforms. As such, it is not a “stock exchange” in the strict sense of the word, but it functions similarly and is one of the most important segments of the financial markets.
Nasdaq opening hours
The Nasdaq stock exchange, which mainly trades stocks of technology companies, is open Monday through Friday from 09:30 a.m. to 16:00 p.m. Eastern Time, which is 15:30 p.m. to 22:00 p.m. Central and Western European Time. This is the so-called normal trading period. There is also a pre-market and after-hours market, where trading is possible outside of official opening hours through certain brokers, although there is less volume and price fluctuations. Nasdaq is closed on weekends and American holidays.
European stock exchange opening hours
European stock exchanges, such as the Frankfurt Stock Exchange (Xetra), the Euronext in Paris, the Borsa Italiana in Milan or the London Stock Exchange, generally operate according to similar opening hours. Most European markets are open from Monday to Friday, Central European Time (CET/CEST), from 9:00 to 17:30. The exception to this is the London Stock Exchange, which operates from 8:00 to 16:30 UK time, which can be one hour off the continental time zone in summer and winter.
These exchanges are closed on weekends and on national holidays in some countries. Although European markets do not have formal pre- and post-market trading hours like American exchanges, some stocks can be traded during extended hours through certain brokerage firms, but with less volume and liquidity.
What is the US Securities and Exchange Commission, the SEC?
The Securities and Exchange Commission (SEC) is the financial regulatory agency of the United States federal government, responsible for protecting investors, maintaining the integrity of capital markets, and preventing market abuse, fraud, and insider trading.
The SEC was established in 1934 following the Great Depression and has since overseen the operations of publicly traded companies in the United States, their disclosure obligations (e.g. annual reports, quarterly reports), and both on- and off-exchange securities trading. The SEC plays a key role in ensuring that markets are transparent, regulated, and reliable.
Which broker should I choose to buy shares?
There are several aspects to consider when choosing a broker - we will write a complete article about this - but I would like to highlight a few that are worth considering:
- size, reliability: The bigger a broker, the safer it is. Those with a banking background – Erste, K&H, Charles Schwab, etc. – are even better, and well-known brokers are typically more reliable.
- expenditures: Brokers operate with various costs, such as the account management fee, the portfolio fee - which is the worst cost -, the purchase/sale fee and the currency exchange cost (if USD is not deposited in the brokerage account)
- Availability of instruments: It doesn't matter which broker has which market available, or whether they add the given instrument upon request and how quickly.
- account type: cash or margin account, the latter can only be used for options. For Hungarian tax residents, having a TBSZ account is important, but citizens of other countries also have special options – such as the American 401K retirement savings account – which are either supported by the broker or not.
- surface: is one of the most underrated aspects, and it can be a real pain. Anyone who had an account with Random Capital, a now-defunct Hungarian broker, knows what it's like to work on a platform left over from the 90s. Erste's system is lousy slow, Interactive Brokers requires a flight test, and LightYear believes in simple but modern solutions.
Based on the above, I recommend the Interactive Brokers account because:
- the world's largest broker with a strong background
- a few million instruments are available on it, and shares listed on multiple markets – e.g. both the original and the ADR – of a single share are often available
- Interactive Brokers a discount broker, they have the lowest prices on the market
- you can link your Wise account to them, from which you can quickly transfer money
- Morningstar's analyses are available for free under the fundamental explorer (good for analysis)
- EVA framework data is available under fundamental explorer (useful for analysis)
- they have both cash and margin accounts, Hungarian citizens can open a TBSZ
- you can use three types of interfaces: there is a web and PC client and a phone application
Legal and liability statement (aka. disclaimer): My articles contain personal opinions and are written solely for my own entertainment and that of my readers. iO ChartsThe articles published on do NOT in any way exhaust the topic of investment advice. I have never wanted, do not want and am unlikely to provide such in the future. What is described here is for informational purposes only and should NOT be construed as an offer. The expression of opinion is NOT in any way considered a guarantee to sell or buy financial instruments. You are SOLELY responsible for the decisions you make, and no one else, including me, assumes the risk.
