Frequently asked questions about Stocks

Stocks are securities that represent the ownership interest in a company (public limited companies).

The ownership of a company can be divided among a small group of individuals (an economic group or members of the same family) or spread among many people. This occurs when the company's stocks are listed on a stock exchange, making them easily accessible for public purchase.

The first step before making any investment decisions is to understand how the stock market works and familiarize yourself with its characteristics. It's important to know the different types of stocks, the associated risks, and the investment strategies you can take. Next, you should set your investment goals and determine your investor profile, taking into consideration your risk tolerance, available time for investing, and financial situation.

The next step is to open an account with a brokerage firm. Research and compare different brokerage options, considering factors such as fees, customer service, and available investment tools.

After opening your brokerage account, you can start building a diversified portfolio by investing in stocks from different sectors and industries. Conduct thorough research on companies you are interested in, analyze their financials, and consider factors such as their competitive position and growth prospects.

When you're ready to make investment decisions, place buy or sell orders through your brokerage account and regularly monitor the performance of your investments.

There are two types of analysis you can do to choose which stocks to invest in:

Technical analysis: this analysis is based on interpreting stock price charts. Investors who use technical analysis believe that all relevant information about a stock is reflected in its price history and trading volume. This analysis helps identify patterns and trends in charts that can predict future price behavior.

Fundamental analysis: fundamental analysis is the study of the financial characteristics of a company such as its growth, risks and corporate governance that can help determine the potential value of its stocks and future investment opportunities. There are two distinct approaches to fundamental analysis, top-down and bottom-up. Top-down focuses on macroeconomic and sector factors such as inflation, interest rates, and unemployment rates. Bottom-up focuses on specific factors such as the company's business model and management quality.

One of the great advantages of investing in the stock market is the possibility of buying or selling stocks from different markets, sectors, and companies, allowing for portfolio diversification and risk reduction. Other advantages to highlight include:

Potential for appreciation: by investing in stocks, you have the opportunity to benefit from the appreciation of the assets in the long-term.  If the company you have invested in performs well and its market value increases, the stock price may rise, allowing you to sell the stocks at a higher price than the initial purchase price.

Dividends and income: many companies distribute part of their profits to stockholders in the form of dividends or other income. These payments represent a portion of the company's earnings and are distributed regularly to stockholders.

Liquidity: stocks are liquid assets, which means that they can be bought and sold easily on the market. This gives investors the flexibility to convert their investments into cash whenever they want, offering high liquidity compared to other types of investments such as real estate.

Participation in business: when you invest in stocks you become a shareholder, and can participate in the business and growth of companies. You can also have voting rights at shareholder meetings and influence some corporate decisions.

Investing in stocks also involves certain risks. It's important to educate yourself before making any investment decisions. Some of the main risks associated with investing in stocks are:

Market fluctuations: the value of stocks can fluctuate due to various factors such as general economic conditions, political events, changes in interest rates, financial instability, and market volatility. These factors can negatively affect the stock price and result in financial losses.

Business risk: investing in stocks implies owning a part of a company. Therefore, investors are subject to specific risks related to the company in which they invest. These risks may include poor management, competition, changes in industry  conditions, legal or regulatory problems, and more.

Concentrated portfolio: if an investor concentrates a large part of their investment portfolio in stocks of a single company or a specific sector, they are exposed to higher risk.. If that company or sector faces significant problems, the losses can be more severe.

Irregular dividends: while receiving dividends is an advantage, it’s important to know that not all companies pay dividends regularly or at all times. The payment of dividends is subject to the company's policy and financial performance.

Before making any investment decisions, perform a thorough analysis, diversify your portfolio, understand your risk tolerance, and seek guidance from financial professionals, if needed.

To calculate the return on investment (ROI) of a stock, you can use the percentage return formula. This formula considers the gain or loss in relation to the initial investment:

Percentage Return = (Selling price - Purchase price) / Purchase price) * 100

Where:

The selling price is the price at which you sold your shares.

The purchase price is the price at which you bought your shares.

The result of this calculation is a percentage value, which represents the return on your investment in relation to the purchase price. If the result is positive, it means you have made a profit. If it is negative, it indicates a loss.

Stock orders are instructions given to brokers to buy or sell shares on the stock market. These instructions can specify the type of order, quantity of shares, maximum or minimum price you are willing to pay or receive, among other details.

Stop Loss Order: it’s an automatic sell order that prevents losses after the devaluation of your security on the market. It detects in advance the decrease in value of your securities without the need for constant monitoring.

Stop Limit Order: it’s a buy order that only becomes active when the security you want to buy rises to a price set by you.

Only stock orders that are in progress can be canceled. The cancellation of an order is also subject to market constraints and conditions.

The cancellation of an order in progress, requested through millenniumbcp.pt, does not  incur any costs for you.