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Which Stock Exchange?Choosing the Right Stock Exchange and Investment Type
The sheer range of investment types can be confusing for the novice investor. Here is a brief guide to stock exchanges plus equities, bonds and commodities.
Depending on an investor’s country of residence, there are generally several stock exchanges to consider working with. In the UK, there are three Recognised Investment Exchanges (RIEs): London Stock Exchange The LSE is the primary trading platform for all sizes of companies – mainly blue chips and mid caps, but also a selection of smaller companies. However, a presence on the LSE (also known as the Full List or Official List) is the most expensive listing in the UK and is not suitable for very small businesses, or those with high cash burn and low income (such as a mining exploration company). Alternative Investment MarketThe second tier exchange, AIM, calls itself the most successful growth market in the world. It attracts a lot of growth companies (small caps that have a lot of unused potential) from a range of countries worldwide, but mostly the UK since that is the home turf. AIM is home to a lot of medium to high risk investments, and offers many exciting growth opportunities. PLUS MarketsAlthough it is growing, PLUS Markets receives the least amount of investor attention, mainly because it is the cheapest and most junior exchange, and has the least strict listing rules. Nonetheless, PLUS also houses some noteworthy growth stocks. Instrument TypesThere is a lot of jargon surrounding the types of investments available, described as instrument types. Equities (called shares in the UK or stocks in the US) are the standard public company investments. Amateur investors buy the Ordinary shares, as they are known, which carry standard dividend and voting rights. That means, if the company distributes a small portion of its profits, shareholders will receive a set dividend payout for every share owned. And when it comes to the company’s Annual General Meeting (AGM), all shareholders can attend and vote on any major corporate changes, for instance electing a new chairman or authorising a major acquisition. There are many more ways of investing in the stock market. For instance, a bond (known as a stock in the UK) is essentially a loan from the investor to the company. In return, the company pays a fixed or floating rate of interest and the money is repaid when the bond expires. Advanced traders also work with commodities (resources or agricultural products like gold, platinum, rice and wheat) and currencies (such as Sterling). These can be traded at current rates (known as the spot price) or on futures contracts. Options and futures, collectively called derivatives, are agreements to buy or sell commodities at fixed prices in the future. In one way or another, traders are still placing bets on whether the price will go up or down in future, just like normal investing. However, knowing the future demand for a commodity is based on entirely different principles than knowing how profitable a company will be this year. So the amateur investor is advised to stick with the basics of stock picking and invest only in equities. This article is part of a series. To see more, visit: Interpreting Financial Accounts How To Create Stock Valuations
The copyright of the article Which Stock Exchange? in Shares/Stocks is owned by Rebecca Turner. Permission to republish Which Stock Exchange? in print or online must be granted by the author in writing.
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