Have you ever wondered how and where to buy real shares, and how a stock investment actually works? Does it seem too complicated, or do you think it takes a large amount of money? Anyone considering adding stocks to a portfolio should know that investing in shares is meant above all for investors who are ready to take responsibility for growing their own money.
The investor has to decide which shares to buy and when. Stock investments come with the prospect of high returns and high liquidity, but also with a higher risk of loss.
| Advantages of investing in stocks | Disadvantages of investing in stocks |
|---|---|
| Prospect of high returns | Risk of losing capital |
| Dividends as a second source of return | Volatile share prices |
| High liquidity on the stock market | Need to study and analyse the market |
| Low to zero broker fees | Limited control over the company (as a minority holder) |
| Managing the portfolio yourself (online too) | Dependence on external factors (macroeconomics) |
| Potential protection against inflation | Room for manipulation and insider trading |
| Geographic diversification at minimal cost |
Investing in stocks
If you are considering stocks, there are several ways to buy them. Besides buying on an exchange, one of them is buying shares online. Today you can choose among several brokerage firms that will arrange the purchase for you.
To buy shares online you need an account with a licensed investment firm that has direct market access. There are two routes: domestic banks and brokerage houses, which usually give you access to your home exchange, and international online brokers, which open the US and Western European markets. The first route tends to mean paperwork and a branch visit, the second is handled from a phone.
Equity funds looked like a sound way to grow spare cash for companies and individuals alike in past decades. Recent years have shown, however, that individual sectors are far more interconnected, that they correlate with each other, and that the quality of buy-and-hold diversification no longer works as well as it used to.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.
Active stock trading
If you have decided to invest in securities, there are a few things to settle first. Every investor has two ways of investing in shares. The first is active trading, where the client opens an account with an investment firm and carries out each transaction through an online application.
Such services are offered by eToro, XTB or Saxo Bank, among others.
What the risk is
The high risk and the very large amount of time the activity demands have to be stressed as well. In active trading through a licensed broker, investors have a wide range of supporting services and applications for their decisions, for limiting losses and for maximising potential returns. Leverage, for instance (using credit from the brokerage to finance part of a purchase), or a stop-loss (closing a position so that the loss does not grow beyond a level set in advance).
Active trading is done mostly over the internet these days, as that is the cheapest and fastest route. The second way is to hand your money to professional managers. That form suits above all those who do not trust their own judgement or do not have enough free time.
Options, fees and entry conditions differ from one manager to another. Wealth management usually calls for an investment in the hundreds of thousands of dollars.
Decide which markets to invest in
It is no longer humanly possible for one person to have enough experience and knowledge to invest competently on every available exchange. Both the adviser and the client therefore usually have one or two stock markets they follow and know well — most often their home exchange and the US market.
In the US, trading takes place on NASDAQ, NYSE and AMEX and on various electronic venues. In Germany, most trading happens on the Frankfurt Stock Exchange and its electronic arm XETRA. Other European exchanges (London Stock Exchange, Swiss Exchange) and Asian exchanges are open to clients as well, but they draw far less interest than the home market and the American ones.
How to buy shares with a broker
To buy shares online you first need a broker account, which takes about 15 minutes to open. Once you have funded it and passed KYC verification, you can follow the steps below to search for, pick and invest in individual shares.
1. Choose an online broker
The simplest way to buy shares is through an online broker (eToro, XTB). Once the account is open and verified, you can buy shares and ETFs through the web or mobile app within minutes. Other services are available on top of that, such as leverage or betting on a falling price.
Opening an online account with a broker is as easy as opening a bank account: you fill in the application, present an ID document and then fund the account by bank transfer or card.
What you need to buy shares, in short
- Opening an account with a broker
- Verifying the account (KYC — ID, proof of address and so on)
- Being at least 18 years old
- Funding the account; the minimum deposit at most brokers is in the tens of dollars
- Getting familiar with the broker’s app and web interface
- The option to try a demo account first
XTB vs eToro: a comparison for buying shares
Most beginners use one of these two brokers, and both let you buy a real share rather than just a bet on its price. They differ in what they earn on — and with small amounts that matters more than the interface.
| XTB | eToro | |
|---|---|---|
| Commission per share | 0 % up to €100,000 of monthly turnover, above that 0.2 % (min. €10) | 1 USD to buy and 1 USD to sell (2 USD on the exchanges in Australia, Hong Kong, Dubai, Abu Dhabi and Tokyo) |
| Currency conversion | 0.5 % markup on the rate (0.8 % at weekends and on holidays) | 1 % when paying by card or transfer, 3,300 pips through wallets; no account in your local currency |
| Inactivity fee | €10 a month, but only if you do not trade for a year and at the same time deposit nothing for 90 days | none |
| Fractional shares | yes, from €10 | yes |
| Minimum deposit | no minimum | 50 USD |
| Who holds the account | XTB S.A. under the Polish regulator KNF, elsewhere in the EU through branches passported across the bloc | eToro (Europe) Ltd, the Cypriot CySEC, licence number 109/10 |
| Compensation if the broker fails | the Polish system at KDPW: 100 % up to €3,000, above that 90 %, capped at €22,000 | the Cypriot ICF: 90 % of the claim, no more than €20,000 |
Put simply: with XTB you pay nothing for the trade itself until you turn over a hundred thousand euros in a month, but you pay half a percent on every conversion into dollars. With eToro you pay a dollar to buy and a dollar to sell regardless of order size, so on a hundred-dollar purchase commissions alone eat two percent.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.
What to watch out for
The zero on the advertising page may not hold. eToro still advertises zero commission on its stock pages, while its own fee page states 1 to 2 USD for opening and for closing a position. The fee schedule is what binds, not the banner.
Withholding tax can be higher than it has to be. Client shares are held with brokers in an omnibus account, so the dividend payer does not know your tax residence. XTB says so explicitly in its fee schedule: in that case the highest rate applies — 30 % on American shares — instead of the rate from the double taxation treaty.
Compensation does not cover an investment loss. Guarantee schemes only apply where the broker fails and cannot hand over your assets. When a share halves in price, that is not an insured event but the outcome of the investment.
A real share and a CFD are not the same thing. With a share you are a part-owner of the company, you are entitled to the dividend and nobody can push you out of the position. A CFD is a contract with the broker that merely tracks the price — no voting rights, no real dividend, with leverage and with a fee for holding overnight. For long-term investing, the first one is the fit.
Tax is settled when you sell. Gains are taxed where you are a tax resident, and the rules differ from country to country — the rate, the reliefs and the holding periods are not the same in Warsaw, Berlin or Madrid. The broker does not file the return for you: you report the sale yourself, using the statement from the platform.
Check the licence in the register. You will find eToro in the list of investment firms on the CySEC website and XTB in the register of the Polish KNF; a broker serving your country should also appear in your national regulator’s register of cross-border providers. It takes five minutes and it is the only reliable way to tell that a broker exists outside its own advertising.
Which stocks and sectors to buy?
With every investment, the investor has to weigh three basic factors: return, risk and liquidity. The general rule is that the higher the potential return, the higher the risk of loss. Among securities you will find shares of companies with a century-long tradition of stable growth (Pfizer, Allianz, Volkswagen, Exxon and others) and newer structured instruments such as index shares, where the risk of loss is small but so is the room for return.
The seven names everyone knows today are technology companies. The nickname Magnificent 7 covers Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta and Tesla. Together they carry roughly a third of the S&P 500 — so anyone buying an index fund on five hundred American companies has a third of their money in seven names. Diversification through the index is not as broad as it looks at first sight.
The nickname has also drifted away from reality. The largest company in the index today is NVIDIA rather than Apple, and Broadcom has taken Tesla’s place among the seven heaviest. We cover it in detail in the article on the seven companies with the largest weight in the S&P 500.
Shares carry risk too
On the other side of the market are shares with enormous price swings, on which you can double your money in a day or lose almost all of it. The third important parameter is liquidity. Some securities trade in such volume every hour that the client can be sure of turning the investment into cash at any moment.
There are also securities where it can take many minutes to sell without pushing the price down noticeably. Lower liquidity, though, often comes with the prospect of a higher return. A good guide can be the field in which the client is an expert (IT, pharmaceuticals, telecoms, finance, food and the like), where they follow the market regularly and know the individual companies. Finding an interesting opportunity is far easier then.
Finally, it has to be stressed that success in investing comes down to choosing among the options above in advance. In professional terms, investing calls for a clear investment strategy. The easiest way to lose money is to keep changing that strategy and to ignore goals set beforehand. Investing is a responsible activity with no room for emotion or vague ideas.