Publications · Educational Materials
Financial Education: Investments, the Stock Exchange, Markets, Intermediaries and Financial Instruments
This series of animated videos has been prepared as part of a joint collaboration project between the Albanian Securities Exchange ALSE and Junior Achievement Albania (JAA), with a focus on financial education and the capital market.
The videos will serve as a tool for raising awareness and educating the general public, and young people in particular, about basic financial principles such as: savings, investments, the financial market, securities, the stock exchange, and the capital market.
The videos are grouped by the topics they cover, in order to better address the interests and specific areas of investors and the public.
Topic 01
↑ All topicsTreasury Bills and Treasury Bonds
Public debt instruments issued by the Government of Albania to finance the State Budget — from the basic concept to the main characteristics every investor should know.
What are Treasury Bills and Treasury Bonds
Educational animated video by ALSE & Junior Achievement Albania.
Characteristics of Treasury Bills and Treasury Bonds
Educational animated video by ALSE & Junior Achievement Albania.
Key Concepts
The Concept of the „State Budget“
Similar to a family budget, or an individual's pocket, which has income and expenses. Our income does not always suffice to cover our individual expenses, so we borrow money from others (parents, friends). In the same way, the State Budget, whose only income is taxes from businesses and citizens, incurs expenses in the form of administrative costs (salaries, pensions, offices, etc.) and in the form of public investments (roads, bridges, schools, hospitals).
The State Budget's Need to Borrow
Which it does by borrowing from other states, or by issuing (selling) securities, otherwise known as securities. The debt securities issued by the Government to finance the needs of the State Budget, which it sells with a commercial interest, are called Treasury Bills and Treasury Bonds.
Investors in Treasury Bills and Treasury Bonds
These are mainly citizens with their modest savings, but also any other private or public institution that has surplus funds (savings) for a short period of time. Investors buy Treasury Bills and Treasury Bonds expecting, in return, a monetary profit in the form of interest on the money they have invested (in financial terms, called the principal).
Low Risk of Non-Payment of Obligations by the Government
Another reason investors prefer investing in Treasury Bills and Treasury Bonds is the fact that they are confident their money will be returned along with the interest. This is because the issuer (seller), which is the Government, always has inexhaustible income (has the ability to pay), since it has the right to two very powerful legal instruments that help it pay its obligations, such as: the legal right to impose taxes (fiscal policy), and the legal right to ask the Bank of Albania to put more money into circulation, in a controlled manner (the money issuance process). However, because of the small risk they carry, the benefit (interest) that investors get from Treasury Bills and Treasury Bonds is also small.
Characteristics of Government Debt Securities
The main characteristics are Lifespan (or otherwise known as Maturity), the Principal (or otherwise known as the Investor's Money), Face Value, and Interest Payment (or otherwise known as the Coupon).
Lifespan (Maturity)
Treasury Bills and Treasury Bonds differ in their lifespan — they are essentially contracts representing the obligation the Government owes to investors for a certain period of time. If the obligation period is short-term, short-term debt securities are issued (Treasury Bills) with a lifespan of 3, 6, or 12 months. If the period is long-term, long-term debt securities are issued (Treasury Bonds) with a lifespan of over 1 year. In Albania, the Government has issued 2, 3, 5, 7, and 10-year treasury bonds, while in developed markets the maturity of Treasury Bonds ranges from 30 to 99 years.
The Principal
This is the money the investor has freely available (mainly savings) to invest. The principal is always returned to the investor in full, at the end of the maturity period (lifespan), together with the interest payment.
Face Value
This is the value per unit carried by each debt security, or otherwise the value of a borrowing contract of the Government toward investors. The Face Value of a Treasury Bill in Albania is 10,000 lekë, while that of a Treasury Bond is 100,000 lekë. The Government sells thousands of units (pieces) of treasury bills and bonds whenever it needs to borrow from the investing public. For Treasury Bills, the Face Value is the total amount of Principal + Interest; for Treasury Bonds, the Face Value is equal to the Principal, while the interest in the form of a coupon is given to the investor separately from this amount.
Interest Payment (Coupon)
This is the investor's share of the benefit from investing in the Government's debt securities (treasury bills and bonds). For Treasury Bills, interest is given as the difference between the price the investor pays at the beginning and the face value received at the end of maturity — the investor pays a discounted price, while at the end receives the face value, which includes the principal and the interest. For Treasury Bonds, the interest is given separately, in the form of a coupon that the Government distributes to investors every 6 or 12 months.
Topic 02
↑ All topicsCommercial Paper and Corporate Bonds
How private business is financed, how a corporation grows its capital by issuing debt, and what an investor needs to know before buying Commercial Paper or Corporate Bonds.
What are Commercial Paper and Corporate Bonds
Educational animated video by ALSE & Junior Achievement Albania.
Characteristics of Commercial Paper and Corporate Bonds
Educational animated video by ALSE & Junior Achievement Albania.
Financing Private Business
Financing Private Business
Private business always needs financing, so that it can keep growing and better serve citizens over an ever wider geographic area.
Forms of Business Financing
Every business started out small in its beginnings and began its activity with the savings of its partners, who put in the initial capital. Later, growth in business volume required more financing to expand or to make investments. The most commonly used forms are:
These forms help the business grow from a small business into a medium-sized business. At this stage, the medium-sized business moves on to other forms of financing directly or indirectly linked to the financial market and financial investments:
Corporations and Their Financing
These forms of financing help the business grow and reach the scale of a large business, otherwise known as a "corporation." Corporations need financing in very large amounts, so they finance their activity mainly through loans they take from banks — but this is not the only way.
Corporate Borrowing through Private Debt Securities
Another form of financing is for the corporation to turn not to a bank, but to the investing public, by issuing and selling securities, otherwise known as private debt securities. The term "private" indicates that it is not a security guaranteed by the state, but that the borrower is a private corporation. The types of private debt securities that corporations can issue are mainly short-term, called Commercial Paper, or long-term, called Corporate Bonds.
Investors and Risk
Investors in Commercial Paper and Corporate Bonds
These are mainly citizens with their modest savings, but also any other private or public institution that has surplus funds for a short period of time. The profit must compensate the investor not only for the time their money is tied up, but also for the risk that the corporation may present as a private business.
High Risk and Non-Payment of Obligations
The biggest risk when buying Commercial Paper or Corporate Bonds is that the private issuer may fail to pay its obligations to the investor. This risk depends on the possibility of bankruptcy, the sector in which the corporation operates, and its management — which is why private debt securities carry higher risk than government treasury bills and bonds, and investors demand a higher level of profit.
Rating Agencies
The risk of corporations is determined by specialized financial institutions called Rating Agencies. These agencies assess the risk rating based on financial and professional criteria. The risk rating determined by the Agencies is taken into consideration by investors before they buy private debt securities issued by corporations.
Types of Private Debt Securities
There are several different types (mainly Corporate Bonds). These can be:
- Secured or Unsecured for payment against assets or other entities.
- In foreign currency or in local currency, depending on the financing needs of the issuing corporation.
- With a Fixed or Variable Interest Rate (the interest rate changes, or remains fixed, only on the dates of interest or coupon payment).
- Backed or not Backed by Assets (the issuance is made by pledging real estate owned by the issuing corporation).
- Payable Before the Maturity Date, if the issuing corporation has good expectations of income that would allow it to pay its obligations ahead of schedule.
- Convertible into Shares — giving investors the opportunity, once they see the corporation's seriousness and success, to become co-shareholders in the future.
- Subordinated Debt, which indicates that the investor is the last to receive debt payments among the corporation's lenders.
The characteristics of Private Debt Securities are Lifespan (Maturity), Principal (Investor's Money), Face Value and Interest (Coupon), as well as Risk — which relates to the possibility that the corporation issuing the securities may fail to pay its obligations.
Characteristics of Private Debt Securities
Lifespan (Maturity)
Commercial Paper and Corporate Bonds are essentially contracts representing the obligation the private Corporation owes to investors for a certain period of time. If the obligation period is short-term, Commercial Paper is issued, with a lifespan of 3, 6, or 9 months. If it is long-term, Corporate Bonds are issued, with a lifespan of over 1 year.
The Principal
This is the money the investor has freely available (mainly savings) to invest. It is always returned to the investor in full at the end of the maturity period, together with the interest payment.
Face Value
The value per unit carried by each debt security, which is variable and set by the issuing corporation itself. It is usually recommended to be as small as possible, in order to give even citizens with modest savings the opportunity to invest.
Interest Payment (Coupon)
For Commercial Paper, interest is given as the difference between the price paid at the beginning and the face value received at the end of maturity (discounted price). For Corporate Bonds, the interest is given separately, in the form of a coupon that the issuing corporation distributes to investors, usually every 6 or 12 months.
Fixed Income (unchanging)
Because the periodicity of interest payments is standard according to the issuance date, these securities are considered fixed-income securities. If the coupon rate is variable, then the investor's income also changes according to the movement of the rate.
Liquidity
If investors want to turn their investment into liquid form (cash), they can sell the commercial paper and corporate bonds at any moment before the maturity date, on an exchange where these securities are listed and allowed to be traded.
Spread
This is the price difference at which the same debt security is bought and sold on the exchange — an indicator of liquidity. The smaller this difference, the more liquid and less risky that security is, and vice versa.
Topic 03
↑ All topicsEquity Securities – Shares
What a share represents, how a corporation raises capital by selling shares, and why investors consider them securities with higher risk and higher return potential than debt securities.
What are Equity Securities – Shares
Educational animated video by ALSE & Junior Achievement Albania.
Characteristics of Equity Securities – Shares
Educational animated video by ALSE & Junior Achievement Albania.
Note: in the original material, both videos (3a and 3b) linked to the same URL — we have kept it exactly as you provided it; please confirm if Video 3b should link to a different URL.
What Shares Are
What Shares Are
Securities that represent ownership rights over the assets of a corporation. The rights carried by shares are:
A Tool for Raising Capital
Shares are a good instrument for raising capital and financing corporations' activity without debt. Since there is no limit on the number of shareholders, new shares can be issued and sold to new shareholders. The funds from the sale of new shares are new capital, very important for financing.
Book Value and Market Price
Book Value relates to the value that 1 share has on the company's balance sheet. Market Price is the price of the same share on the exchange, based on supply and demand — usually higher, since it includes investors' expectations, the corporation's reputation, brand, image and geographic reach.
Ways of Selling Shares
Directly
Existing shareholders select who the new shareholders joining the corporation will be. New shares are usually sold to financial institutions (pension funds, investment funds, insurance companies), which buy them for a medium-term investment period (usually 3–5 years).
On the Exchange
New shares are offered to the general public; existing shareholders have no ability to refuse new investors. The corporation is considered publicly offered and its shares are listed on the Exchange, where they can be traded at any moment, being fairly liquid — this makes them attractive to investors.
Characteristics of Shares
Why Corporations Sell Shares on the Exchange
Because they need long-term funds in large amounts. Unlike debt securities, the funds raised from selling shares do not have to be paid back to investors — the least costly form of financing for corporations.
Why Investors Buy Shares on the Exchange
Because they aim for two types of benefits:
Dividend Distribution
The corporation has no obligation to distribute a dividend. Especially during the growth phase, the main shareholders may decide to reinvest the profit in the business instead of distributing it — the least costly form of financing. Listed corporations make their dividend plans public, so that investors are clear about expectations.
High Risk
Shares carry high risk: from a legal standpoint, shareholders are the last to benefit in the event of bankruptcy, or may lose everything. Their price on the exchange fluctuates frequently, as it is influenced by any information related to the corporation's activity.
High Return
Because of the high risk, the rate of return and the profit that investors demand from investing in shares is higher than from investing in debt securities.
Trading Shares on the Exchange
Investors easily buy or sell on the Exchange, through a financial intermediary (bank or brokerage firm). The investor must have a contract with the intermediary, as well as a bank account for cash and an account for the securities they will trade.
Price of Shares Listed on the Exchange
Determined by investor supply and demand. If expectations are positive, demand rises and the price rises; if they are negative, supply rises and prices fall.
Volatility
The price of shares listed on the exchange is often unpredictable. Volatility comes from the behavior of investors who buy or sell based on expectations or information about the corporation's success.
Risk Assessment
Like other securities, the risk of corporations with listed shares is assessed by specialized intermediaries, called Rating Agencies.
Other Evaluation Indicators
Besides the risk rating, investors also look at other indicators of the corporation's success, such as the Price-to-Earnings ratio (P/E) and Earnings Per Share (EPS).
Topic 04
↑ All topicsFinancial Markets
How the financial market works, who its operators are, and how markets are classified according to the nature of the funds and securities traded.
Financial Markets
Educational animated video by ALSE & Junior Achievement Albania.
Characteristics of Financial Markets
What a Market Is
The mechanism that makes it possible to match demand with supply for a given asset (goods or services). The development of technology has erased the physical concept of the market, since the buyer and seller no longer need to know each other or meet in person — a mechanism that matches their needs at any moment is enough.
What the Financial Market Is
The mechanism that makes it possible to match demand and supply for funds (money) in the country's economy. These funds flow from those who have them unengaged (mainly savings) toward entities that need funds to finance their activity, be it a business, a government, or individuals.
Operators of the Financial Market
Issuers of Securities
Entities that need funds: they issue securities and sell them on the financial market to raise income that they will use to finance their activity. These can be businesses, the Government, or other institutions.
Investors in Securities
Entities with surplus, unengaged funds, seeking an investment alternative. Mainly individuals with their savings, but also institutional investors such as pension funds and investment funds.
Financial Intermediaries
Financial institutions that facilitate the matching of supply and demand for funds and securities, adapting them to the needs of each party — banks, exchanges, brokerage firms, insurance companies, investment funds, and pension funds.
The Exchange
A market for securities — the mechanism that brings together all the operators: issuers of securities, investors, and financial intermediaries.
Regulators
Independent state institutions that oversee market operators to protect investors from possible abuse — through filtering entry into the market (licensing) and continuous monitoring (supervision).
Classification of Financial Markets
Banking Market versus Non-Banking Market
This relates to the acceptance of deposits. Intermediaries allowed to accept deposits are operators of the banking market; the others are considered operators of the non-banking market.
Money Market versus Capital Market
This relates to how long funds remain in circulation. Funds with a maturity of up to 1 year are money market securities; with a maturity of more than 1 year (or with no maturity, such as shares) they are capital market securities.
Primary Market versus Secondary Market
When securities are created and sold for the first time, it is considered the primary market; every subsequent change of ownership is considered the secondary market. Secondary markets provide liquidity and increase confidence in the financial market.
The Exchange as a Secondary Capital Market
The Exchange is a secondary market where securities are traded (change ownership) between buyers and sellers at any moment, after having first been placed on the primary market by the issuers. On the exchange, mainly long-maturity capital securities (bonds) or securities with no maturity (shares) are traded.
Topic 05
↑ All topicsWhat the Stock Exchange Is and How It Works
Who benefits from the Exchange, who its main actors are, and how the processes of listing, membership, and trading of securities work.
What the Stock Exchange Is and How It Works
Educational animated video by ALSE & Junior Achievement Albania.
Broker Members and Trading on the Exchange
Educational animated video by ALSE & Junior Achievement Albania.
What the Exchange Is
What the Exchange Is
The mechanism that enables the matching of demand and supply for long-term capital — from those who have unengaged funds (mainly savings), toward entities that need funds to finance their activity, be it a business, a government, or individuals.
The Exchange as a Market
Functionally, the exchange resembles a supermarket. Just as corporations display their products on shelves and citizens buy them according to their needs, on the exchange corporations list and sell securities to citizens who invest with the aim of making a profit.
Who the Exchange Serves
Business and Other Issuers, such as the Government
To raise capital in large amounts by selling securities (titles). The Exchange helps businesses have a more accurate market price for their shares, helping them recognize the enterprise's real market value.
Citizens (Investors)
To increase the value of their savings, as well as to diversify various investment risks.
Actors in the Exchange Market
Listed Corporations (Issuers)
List and sell their securities on the exchange to generate funds and finance their activity.
Securities
Financial instruments that are listed and then traded every day on the exchange, for the purposes of liquidity and profit.
Members
Financial intermediaries who have access to the exchange's system to sell and buy listed securities, either for themselves or on behalf of their clients.
Investors
Individuals or institutions who use the Exchange as a tool to allocate their savings with the aim of generating profit and being able to turn their investment positions into liquidity.
The Process of Listing Issuers on the Exchange
Registration on the Exchange of securities issued by Corporations and the Government, for the purpose of enabling them to be traded by investors.
Listed securities and their issuers must be trustworthy, in order to build confidence among investors.
The issuer and the entire public offering process must be authorized by the regulatory authority and meet the requirements of the Exchange where they are listed.
The issuer prepares the Prospectus — the detailed informational material (the "passport") made available to the investor, to enable them to make a fair decision.
The Prospectus is approved by the regulatory authority, which does not guarantee the investment risk, but only that the information has been made public in accordance with the law. The Initial Public Offering (IPO) then begins.
After the Public Offering ends, the securities are listed on the exchange and continue to be traded every day among investors.
The Process of Membership of Intermediaries on the Exchange
- Financial intermediaries, otherwise known as Exchange Brokers, are mainly financial institutions, banks, or brokerage firms.
- Before becoming Members of the Exchange, these entities must hold a license to carry out this activity from the country's regulatory authority.
- Membership on the Exchange means the privileged right to have access to the electronic trading system and to trade securities either for themselves or on behalf of their clients. Members must meet additional rules set by the Exchange, to preserve market integrity and avoid abuse.
- On some Exchanges, Members participate physically through their brokers on the trading floor; on most exchanges in the world, brokers enter orders from their offices via Remote Access.
- Citizens who want to invest on the Exchange can only do so through a Member of the exchange, by signing an agreement and opening a securities account and a cash account.
The Process of Trading Securities on the Exchange
- Once listed for the first time, securities are traded among early investors who want to liquidate their position and new investors who want to take on an investment position.
- Trading on the Exchange takes place every day, during set hours made public to members and investors.
- The prices of securities listed and traded on the Exchange fluctuate at every moment, depending on investor supply and demand.
- Demand for securities rises, driving prices up, when investors' expectations toward the issuing corporation are positive; the opposite happens when expectations are negative.
A Barometer of Performance
The price of securities traded every day on the Exchange is the best barometer for assessing a corporation's performance.
Topic 06
↑ All topicsWhat an Investment Fund Is
How collective investment works, who manages the funds, and how investment funds are classified according to their risk and purpose.
What Are Investment Funds and How Do They Work
Educational animated video by ALSE & Junior Achievement Albania.
Classification of Investment Funds
Educational animated video by ALSE & Junior Achievement Albania.
The Process of Investing in Securities
There are two forms of investing in securities:
Direct Investment
The investor decides for themselves what monetary amount and in which security to invest their savings. Although it seems simple, it is recommended only for professional investors, with sufficient technical knowledge and awareness of the level of risk they are taking on.
Indirect Investment
The decision to select securities is delegated to professionals (investment or pension funds), while the citizen decides only on the monetary amount they wish to invest. In this way they receive a ready-made financial product, with lower risk because it has been diversified by market experts.
What an Investment Fund Is
A collective scheme for investing citizens' savings, managed professionally.
A Pool of Funds
An investment fund resembles a pool where funds (money) are gathered from various investors who want to earn more income from their savings.
Management
Carried out by specialized financial intermediaries called Asset Management Companies, which have the human resources and technological capacity to manage large amounts of funds. They receive a symbolic commission on the profit, before it is distributed to investors.
Investing the Fund's Money in Securities
Carried out by the Management Company after detailed market analysis. The process is transparent for the citizens who have invested, and follows a logic of diversifying risk across classes of securities that carry different risks. For example:
High Risk
100%
Medium Risk
Bonds 50%
Low Risk
100%
Illustration of the fund's portfolio allocation by risk level, as presented in ALSE's original educational material.
Key Terms of the Fund
Fund Units/Shares
Securities in the form of participation certificates in the fund, made available to investors at the moment of investment. Investors can sell them at any time to the Management Company, converting their position into cash.
Unit Value/Price
Rises depending on the increase in the value of the securities in which the fund's money is invested, as well as the more the number of investors in the fund grows. The increase in the value/price of the units and the fund is the profit enjoyed by the citizen from this investment.
Assets Under Management (AUM)
The total market value of the securities or assets in which an investment fund's money is invested.
Net Asset Value (NAV)
The net market value of the fund's securities or assets, after costs and management fees have been deducted. It is calculated every day and published together with the unit price, to keep the public informed.
Classification of Investment Funds
There is a varied classification of funds, but in general they can be summarized into 3 main classes:
Traditional Investment Funds (mutual funds)
These find wider use in the market, due to their simplicity of operation, transparency, and comparatively low level of risk. They can be open to the entry and exit of new investors (open-ended), or closed funds, dedicated only to certain founding investors (closed-ended). They are usually offered publicly and target small investors with modest financial education, which is why regulators impose high transparency requirements on them. They are mainly invested in securities, but also in other assets such as deposits, stock indices, or other forms of the money market.
Alternative Investment Funds
These carry a high level of risk, due to the diversified assets and the industry in which they operate. They are mainly aimed at institutional and professional investors, or speculators seeking high rates of return. The main groups are:
Exchange-Traded Funds (ETFs)
Created specifically to increase liquidity. They are mainly diversified across the securities of a given exchange index, which makes them easier to trade and diversifies risk in the best possible way. Unlike traditional funds, ETF units are traded on securities exchanges at any moment, creating a high level of liquidity for investing citizens.
Topic 07
↑ All topicsWhat a Pension Fund Is
Why saving for retirement is a decision that should not be postponed, and how every citizen can become part of a pension fund.
What Are Pension Funds and How Do They Work
Educational animated video by ALSE & Junior Achievement Albania.
How to Become Part of a Pension Fund
Educational animated video by ALSE & Junior Achievement Albania.
Pension as a Concept
Pension as a Concept
Time passes very quickly, and we think we will always have enough income to live normally at any time — but that is not so. This is the reason why a pension fund is a form of savings, through which citizens transfer their ability to consume to a later time, when they are unable to earn much income.
Citizens' Income
This is a curve that also shows the trajectory of their ability to generate income over their lifetime. This income mainly depends on the individual's age, education, or experience over the years.
Citizens' Expenses
For a normal life, these form an almost constant curve, due to the individual's nature.
Why We Should Save for Retirement
This is a way for citizens to save in order to finance consumption during a period of life when they can no longer offer their labor to the market and earn income.
Pension Funds
Collective schemes of citizens' savings, managed professionally, which help the citizen transfer their savings to a later time.
Management
Carried out in a manner similar to the management of investment funds, but because of the sensitivity felt by the public, pension savings are invested more conservatively, in order to protect citizens.
Benefits Brought by Pension Funds
Savings "under the mattress" seem to serve the same function — "setting money aside for a rainy day." But this form does not protect the citizen from the effect of the depreciation of money (inflation) and brings no additional income, whereas savings in pension funds are invested and generate more income for citizens. Another benefit is the exemption of savings from income tax, up to a certain level.
How You Can Become Part of a Pension Fund
The Fund Is Selected
The citizen selects which Pension Fund they will entrust their savings to. In making this choice, they take into account:
The Form of Payment Is Selected
The citizen can choose to make their savings periodically and automatically from the salary they receive each month, or they can choose to pay from time to time, according to their means.
Don't Neglect It
Citizens think that retirement is far away and that they have time to think about it, so they keep postponing the decision to save through pension funds. The routine and problems of life catch us up and prevent us from saving in a pension fund — and so we lose out to inflation, we lose out on investment profits, and we don't have enough income at retirement age. Old age comes quickly. Don't neglect it!
Topic 08
↑ All topicsWhat Brokerage Firms Are and the Services They Offer
The role of financial intermediaries in the securities market, the types of brokerage firms, and the concrete steps every investor must follow to buy or sell securities.
What Brokerage Firms Are and the Services They Offer
Educational animated video by ALSE & Junior Achievement Albania.
What an Investor Must Do to Buy/Sell Securities
Educational animated video by ALSE & Junior Achievement Albania.
Financial Intermediaries in the Securities Market
Brokerage Firms
Otherwise known as "commission-based companies," these are financial intermediaries in the securities market that serve:
Brokerage Firms' Earnings
Brokerage firms earn a commission on the intermediation services they provide to investors and their clients.
Types of Brokerage Firms
The financial intermediaries allowed to offer securities trading services are broker firms, whether banks or non-banks, licensed by regulators. Commission-based companies mainly offer two types of services:
Broker
The brokerage firm simply executes buy/sell transactions for its clients on the exchange, without taking any position itself as a financial institution.
Dealer
The brokerage firm executes, in addition to transactions for clients, also transactions from its own portfolio, holding a position in the buying/selling of securities.
Role and Criteria of Brokerage Firms
The Role of Brokerage Firms
Criteria for Being a Brokerage Firm
What an Investor Must Do to Buy/Sell Securities
Get in contact with a licensed Brokerage Firm that is a member of the exchange where they wish to trade.
Open a cash account, as well as a securities account, at the custodian bank the Brokerage Firm works with.
Banks are usually themselves also securities custodians for their clients.
Non-bank Brokerage Firms designate a bank as the securities custodian on behalf of their clients.
The Broker
A Specialized Employee of the Brokerage Firm
The broker is a specialized employee of the Brokerage Firm, authorized to:
How Orders Are Transmitted to the Broker
By Phone
The investor contacts the broker of the Commission-Based Company directly.
By Email
The order is transmitted in writing to the licensed broker.
Mobile Application
Through a specialized application for transmitting orders in real time.
Transparency
The brokerage firm has an obligation to regularly inform investors about the daily transactions executed, as well as the cash and securities positions held by each investor in their respective accounts.
Topic 09
↑ All topicsWhat Financial Regulators Are and Their Functions
Why financial institutions need regulation, and what the functions and principles of activity of public regulatory institutions are.
What Financial Regulators Are
Educational animated video by ALSE & Junior Achievement Albania.
Functions of Financial Regulators
Educational animated video by ALSE & Junior Achievement Albania.
Financial Institutions
They Resemble Any Other Normal Business
The Need to Regulate Financial Institutions
Financial institutions are businesses built on citizens' trust, while their activity directly affects citizens' finances. It is therefore very important that financial institutions do not fail or go bankrupt, as this would have an extraordinary impact on citizens and on the country's economic stability. This is why the activity of financial institutions must be regulated and supervised, in order to protect the interests of citizens and the public — a role held by public regulatory institutions.
Functions of the Regulators
Legal and Regulatory Framework
They draft and enforce all the legislation and rules that enable the normal functioning of the financial industry.
Licensing
They license financial institutions that want to newly enter the market, setting fairly rigorous qualitative and quantitative criteria.
Supervision
They monitor, supervise, and correct market operators, so that they do not abuse either the market or citizen consumers.
Consumer Protection
Taking into account the modest level of financial education, one of the main functions is protecting the interests of citizen consumers from market abuses.
Encouraging Industry Development
Financial markets are subject to fairly rapid development trends, mainly driven by developments in IT — which is why regulators maintain a proactive and encouraging approach toward industry developments.
Principles of the Regulators' Activity
Impartial
By enabling free and fair competition among market operators.
Independent
From political interference and other internal and external factors, preserving market integrity. Regulators usually report directly to the country's Parliament.
Professional
By investing in the growth of institutional and human capacities, in order to keep pace with the development of the market and its operators.
Transparent
Transparency in decision-making builds confidence in the regulators' impartiality, by providing statistics and reports that enable independent academic analyses of market development.
Topic 10
↑ All topicsWhat Portfolio and Investment Diversification Is
Why spreading savings across different assets protects the investor, and how diversification is applied by type of security, duration, and industry.
What Portfolio and Investment Diversification Is
Educational animated video by ALSE & Junior Achievement Albania — also includes a visual summary of the types of diversification.
Portfolio and Diversification
The Concept of an Investment Portfolio
This relates to indirect investment in financial instruments or securities that represent rights over real assets (property, real estate, movable assets, etc.). It is called a portfolio because it really resembles a setting that brings together different types of financial instruments, in which the investor decides to spread their savings.
The Concept of Diversification
It resembles the expression "don't put all your eggs in one basket" — even if one basket falls, not all the eggs will break. In the same way, in investments, it is suggested that citizens not concentrate all their savings in a single asset, but rather spread them across different assets, to be better protected.
Why Citizens Should Diversify
- It spreads risk, reducing the probability of losses.
- It enables acceptable and optimal rates of return.
- It cushions against any possible economic crisis with a short-term effect.
- It preserves and increases the value of savings and investments.
Ways of Diversifying
Direct
The citizen decides for themselves on every detail of spreading their savings across different assets.
Indirect
The citizen delegates this right to licensed professionals, such as pension and investment funds or portfolio managers, to carry out the diversification of their savings.
Types of Diversification
- By type of security (bonds or shares).
- By duration (short-term or long-term).
- By industry and geographic location in which the Issuer selling the securities operates, or by its particular characteristics.
Investor Attitudes Toward Risk
Risk-Tolerant Investors
Willing to take on more risk and seeking a higher rate of return from their investment.
Conservative Investors
Do not want risk, avoid investing in such securities, but accept a lower rate of return.
Success and Failure in Investing
Investing is a process that results in profit and success if decisions are made correctly, or in loss and failure if wrong decisions are made. As long as the investment process has been legal, transparent, and free of abuse, the investor cannot blame anyone else for the failure and losses that come from a poor investment decision.
This educational content was prepared by the Albanian Securities Exchange (ALSE) in collaboration with Junior Achievement Albania (JAA).