What is an exchange and how to invest on it?
Roland Prevot, Head of Retail Cash Equity at Euronext, explains what is an exchange, how and why to invest on it and the advantages, and why zero-commission investment is a myth.
Listen to the full interview. Watch the video.
What is an exchange?
The exchange is essentially a marketplace where buyers and sellers come to trade financial instruments. When we talk about financial instruments, we often think of shared and bonds, that is, a company's capital or debt.
However, there are other products like Exchange Traded Funds (ETFs), which are index funds, instruments that track indices like CAC 40 for example. There are also leveraged products, for example, derivatives like options and structured products such as warrants and turbos which I'm sure you have heard of - explains Roland Prevot.
What is Euronext?
Euronext brings together several European exchanges, so the stock markets of Paris, Amsterdam, Brussels, Lisbon, Dublin, Oslo and, most recently, Milan.
How to invest on the exchange?
Investing on the exchange is very simple. You just need to ask your bank or broker to open a trading account or a stock savings plan. They may have direct access to the exchange or they may ask an intermediary to execute your stock exchange order on Euronext.
What are the benefits of an exchange?
The advantages of investing on the exchange compared to other alternatives, is that the Exchange is the market with the most liquidity. This means you can have the most market participants. And the more participants you have, the higher the chances of trading at the best price. It is this liquidity that contributes to the market quality.
With Euronext, you can benefit from the Best Execution solution, which means that Euronext is the trading venue where you will have the best execution price.
I would say - goes on Roland Prevot - that our 'Best of Book' service, which is designed for retail investors, delivers a real advantage to the individual investor, in securing a better price than even a dedicated finance professional could achieve.
Investing with zero commission: myth or reality?
Zero commission investing means using brokers with no brokerage fees.
In my opinion - says Roland Prevot, it is more or less a myth when you are looking for good execution quality.
A broker who is going to send your order to the exchange will charge you to secure the best execution for you. With a "low-cost" solution, you will believe that you have the advantage of not paying brokerage fees, but ultimately, what you don't pay in brokerage fees, you will pay in the execution price.
A final advice?
If I could give any advice, it would be to choose your broker carefully. Don't get hung up on brokerage fees, but instead look at the terms offered by your broker before opening an account.