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How to get and understand information

Trading on the Frankfurt Stock Exchange
You have taken the first hurdle by opening your securities deposit account. Now you can start investing and trading. However, before you begin, take a closer look at the securities in which you wish to invest. You need an opinion of the market, i.e. an estimation of which market or sector performs well. And in order to do so, you require the right information. We would like to point you the way through the information jungle.
As a reminder: acquiring a stock means acquiring a share in a company. You become one of the company’s owners. This entitles you to share in its profit if it has generated a surplus and distributes a dividend. Moreover, the value of your share increases if the company flourishes and, as a result, is rewarded by the market. However, the opposite may also occur: the company generates a loss and its share’s value decreases.

Market opinion and risk

Therefore, you need to consider a couple of things before making your decision to buy a specific share. Firstly, you should be very clear about how much risk you are willing to take.

Secondly, you should form your own opinion of the market through targeted and in-depth research. It is very important not to look at individual companies, but to assess the greater picture. Daily newspapers are suitable sources of information when it comes to an explanation of interactions between the stock market and economic conditions. They offer well-founded background information and analyses on the stock market, the overall economy and individual sectors.

Focus on five titles

Stock market professionals often recommend that one should select four to five titles and observe them closely. It is helpful to focus on a specific sector, such as automotive or pharmaceuticals. Information on the size of the respective market and companies operating in it is essential. For that purpose, Deutsche Börse offers 18 different sector indices that track the development of the companies included therein. Of course, different sectors are subject to different risks. This is why each investor should define how much risk they are willing to take and consider these factors when deciding on a sector. One should also note that the sectors may perform differently than the overall market. Further information on the performance of particular sectors is provided in the sector reports published by several banks.

Read the balance sheets
There are several documents that are of use to investors when researching and analyzing a company. Companies are obliged by law to provide certain documents. This includes balance sheets, profit and loss accounts, ad-hoc announcements and directors’ dealings, to name but a few.

According to Professor Bernhard Pellens of Bochum University, not only is the profit and loss account of great importance to investors, but also the cash flow, as these figures cannot be manipulated. The cash-flow figures are of interest for investors because it shows how much cash profit was generated by the company in operational business. Thus, it reflects the surplus of operational income. The better this ratio is, the more liquid the company.
Learn from others

There are several ways for exchange novices to benefit from expert know-how. Investment clubs provide a useful platform to learn more about the world of the stock exchange among like-minded people. Investment clubs offer bundled knowledge and experience and usually follow a clearly defined investment strategy. Whether conservative or speculative – there is a club for each type of investor. For those who prefer to acquire theoretical knowledge, a wide range of literature is available. Numerous books give advice on investment strategies and a range of business magazines also make research available to investors.

Essential sources of information