Equities (also called stocks or shares) are securities, which represent an ownership interest in a company and an entitlement to dividends or other type of income. Shareholders (or stockholders) are co-owners of the company.
The shares of public companies are traded on stock exchanges and their prices fluctuate depending on demand and supply, as well as on company performance and other factors..
Making a profit from share price fluctuations
Stock investors and traders can benefit from changes in company share prices on stock exchanges. Investors can employ both shorter-term and longer-term investment strategies.
Receiving dividends from holdings in a company
The majority of companies pay their investors dividends from the profits that they earn. In this way company owners receive return on their invested capital.
Making long-term investments in stocks
Investors can make long-term investments in order to benefit from company growth over time.
Stocks can be bought and sold at any time when stock exchanges are open for trading. Minimum transaction amounts may apply in some stock exchanges.
Tax on earned income (profit)
Capital gain, or profit earned from disposal of equities, is subject to tax. The personal income tax rate on capital gain is 20%. Capital gain calculation, income declaration and the payment of the tax is the responsibility of the customer. AS PrivatBank does not provide advice on taxes payable on transactions with shares.
Income tax (dividends)
In Latvia, dividends paid to shareholders of public companies are subject to 20% income tax. It is the responsibility of the securities account holder to withhold tax from dividends paid to the shareholder for publicly traded stocks and transfer the tax withholding into the state budget. Dividends paid to shareholders of foreign public companies may be subject to a higher tax in the country where the dividends are paid out.
Market risk – stock prices may fluctuate substantially and this may create both a profit potential and increased investment risks. Stock investors must have the capacity to assume the high risk of price fluctuations associated with investing in equities. Equity prices are affected by various factors, such as company performance, economic factors and investor sentiment.
Liquidity risk – the risk that the investor might be hard-pressed to buy or sell equities quickly, in desired volume and at an acceptable price. The stocks of large companies are normally easier to buy and sell as because such shares are traded by many investors. The liquidity risk is higher with stocks of smaller companies.
Macroeconomic risks – the prices of equities may change in case of changes in economic data, interest rates and other indicators reflecting a country’s economic performance. The business of companies is affected by the national economies or even the global economy.
Company performance risk – investments in stocks are subject to the risk of the performance of the company. It’s possible for company’s profit figures to decrease. Businesses may operate with a loss and, in worst-case scenarios, even go bankrupt – in case of bankruptcy shareholders usually lose the greater part or all of the value of their investment.
Bank applies fees and charges for buying, selling, safekeeping of securities according to the Bank fees. In addition taxes are applied to income (see. part Taxes). Please get acquainted with all the relevant costs before transactions, as costs and charges will affect product profitability.