The Differences Between Investing In Public and Private Exchanges
Written by Tiffany Tran on September 13, 2017
Investing can be a harsh but rewarding journey. Buying stocks from companies can turn the money sitting idly in your bank account into much more. With the insignificant amount of interest, you earn from banks nowadays, investing your money is the right thing to do. Before you begin, the first thing you should decide is whether you want to invest in public or private exchanges.
The public exchange is a market where the stocks of listed companies can be bought and sold. These companies have gone through a lengthy application process and have to meet specific requirements in order to be eligible to have their stocks traded on the market. The companies you find on the public exchange are usually more mature. The stocks found in this market are very liquid. This means they are being often sold without having the price being heavily affected.
Companies on the private market, as you can deduce from the name, do not have their shares available for trading on the public market. Shares in a private company are often illiquid meaning they are often difficult to sell. Companies in this market tend to be (but are not always) businesses that have just started, have lots of money to pay off, or do not meet the requirements needed to be listed on a public stock exchange.
Now comes the million dollar question: should you invest in the public exchange or the private exchange?
Imagine this: In front of you is a briefcase containing $500,000. You can either take it and leave or flip a coin. If the coin lands on heads, you get double the amount of money. What would you choose? If you choose the first option, investing in the public exchange is probably right for you. People that invest in this type of exchange tend to take fewer risks. These are people that enjoy stability in their lives.
In comparison to the private exchange, the public exchange is less risky. The risk you take when you invest your money is losing it all. Why would anyone want to invest in the private exchange then, you may ask? Well, there is one simple answer to that question: the higher the risk, the higher the return.
As mentioned above, privately held companies tend to be companies with lots of debt, in their early stages, or companies that do not have the revenue needed to become successful. This being said, the chances of the company going bankrupt is higher than the chance of the mature and stable companies on the public exchange doing so. However, you will make more money investing in these enterprises.
You can usually buy the stocks of these companies at a lower price as they are companies that may not be doing so well. If you choose the right companies, with the help of money from investors, they may be able to recover from their financial slump become a successful business. This is when you will begin to earn lots of money from your investment.
No matter whether you choose to invest in the public or private exchange, always do your research before putting your money in a company. Take a look at the company's revenue, plans they have for the future, and any financial problems they've had in the past. It is important to keep in mind that investing on a public exchange still has some risk and investing in private exchanges does not always yield high return. If it is your first time investing and you are not sure where to being, financial service companies can lead you onto the right path where you can start letting your money work for you.