You have selected an investment strategy that matches your financial goals, risk profile, and time horizon, and now it is time to put it into practice. When it comes to financial instruments, many people think that investing is a complicated and confusing endeavor. In reality, this is not the case. Let us see what should be considered when starting the investment process.

 

1. What Are the Financial Instrument Markets?

Financial instruments are traded on two main types of markets – regulated and unregulated.

A regulated market is an organized, centralized system where buyers and sellers of financial instruments such as shares, bonds, and other securities meet to conclude transactions under strict rules and regulations. An example of a regulated market in Bulgaria is the Bulgarian Stock Exchange. This type of market is under constant supervision and control by regulatory bodies such as the Financial Supervision Commission (FSC) in Bulgaria. There are also other trading venues, including Multilateral Trading Facilities (MTFs) and Organized Trading Facilities (OTFs). For instance, the Bulgarian Stock Exchange operates a multilateral trading system.

The over-the-counter (OTC) market is a decentralized trading environment and, although subject to certain regulations, it is not as strict as those governing regulated markets, MTFs, and OTFs. Securities are traded by dealers and brokers connected through an electronic network.

Investors do not have direct access to financial markets – this access is provided through companies licensed to operate as investment intermediaries. To protect investors’ interests and ensure transparency and security when trading financial instruments, intermediaries must hold a license issued by the supervisory authority in their country of incorporation. In Bulgaria, such authority is held by the FSC. The licensing and activities of investment intermediaries and regulated markets in financial instruments are regulated in the Markets in Financial Instruments Act.

Investment-related services may also be provided by banks licensed by the Bulgarian National Bank and listed in the FSC register, by Bulgarian asset management companies, as well as by investment intermediaries and asset management companies from European Union Member States that are authorized to offer investment services within the EU.

 

2. How to Choose an Investment Intermediary?

When choosing an intermediary, you should inquire about several key aspects.

• Check whether the company holds a license for investment intermediation and what its scope is.
  Bulgarian investment intermediaries are licensed by the FSC, which maintains a Register of Investment Intermediaries, publicly accessible on its website.
• Make sure that the investment intermediary is authorized to operate in Bulgaria.
  If the investment intermediary is from an EU Member State, it may operate via a branch, a tied agent, or under the freedom to provide services. This information can be found on the FSC website under the section “Notifications received by the FSC.”
  If the investment intermediary is not from an EU Member State, it must establish a branch in Bulgaria that is licensed by the FSC in order to operate.

You can find detailed information and advice on how to recognize legitimate investment intermediaries and protect yourself from fraud on the FSC’s website under the section “Your Finances” – “Recognize a Licensed Investment Intermediary.”

• Familiarize yourself with the intermediary’s tariff of fees and commissions.
  Fees and commissions represent the cost you pay for mediation in financial instrument trading. While not the leading criterion for selection, they can significantly impact your returns. The amount and type of fees usually depend on the product you choose to use. It is wise to compare the terms offered by different intermediaries before deciding whom to work with.
• Check which financial instruments the intermediary offers for trading.
  Some investors focus on traditional instruments and services, while others prefer more complex tools such as Contracts for Difference (CFDs), options, or the use of leverage to increase potential returns.
  Make sure you understand the nature of the instrument you wish to trade and are aware of the inherent risks. Investment intermediaries are required to provide information about these instruments.
• Verify where your money and financial instruments are stored.
  It is important to know where, how, and at what cost your financial instruments are stored. Keep in mind that some intermediaries have specific conditions regarding the storage and use of your assets, which you should familiarize yourself with.

Good to know: Financial instruments traded on regulated markets are dematerialized, meaning they exist in the form of electronic records. All information about the ownership and movement of financial instruments is stored in central securities depositories, which manage settlement, storage, and securities management systems. In Bulgaria, this function is performed by Central Depository AD.

 

3. How can I trade financial instruments?

To start trading financial instruments, you must first sign an agreement with an investment intermediary, open an investment/trading account with them, and fund it. The required amount depends on the intermediary’s terms.

Investors have different preferences regarding the methods they use for trading. Some of the most common include:

• In-person (at a service desk)
  Some investors prefer to place buy or sell orders in person – at the office or branch of the investment intermediary. This method is commonly used with Bulgarian investment intermediaries.
• Trading platforms
  Intermediaries may also offer services remotely – via trading platforms. These are accessed by installing software on a mobile device or computer. In many cases, access is also possible directly through a browser. Such platforms are offered by both Bulgarian and foreign intermediaries.

Both trading via a platform and client identification can be done remotely. Modern technologies allow for secure and reliable identity verification, making the process convenient and accessible regardless of location.

There are various types of trading platforms, including so-called “robo-advisors”, which provide automated management of investment portfolios. These are more suitable for people who do not wish to be actively involved in making investment decisions and trading financial instruments.

• By telephone
  Orders can also be placed by phone. This method is less frequently used today but remains available for those who do not want to submit orders at a desk and at the same time do not want to use a platform.

Be especially careful when placing orders by phone, particularly when receiving calls. Ensure that you are dealing with a licensed investment intermediary and never share personal or financial information with unknown callers. If you have any doubts, check whether the broker is registered in the official FSC registers.

• Through payment service companies
  These companies typically act as agents of an investment intermediary. In this case, the legal and regulatory responsibilities lie with the intermediary. It is the intermediary with whom you have a trading agreement, and the payment service platform acts as an intermediary between you and the broker.
• Investing in mutual funds
  The above steps apply primarily to investors who wish to trade financial instruments independently. If you prefer to invest in a mutual fund, you may do so directly through the asset management company.

 

Полезни връзки:

Bulgarian Stock Exchange

Financial Supervision Commission

Register of Investment Intermediaries

Register of multilateral trading facilities (MTFs)

MTF BSE International – multilateral trading facility organized by the Bulgarian Stock Exchange

Българска народна банка

Recognize a Licensed Investment Intermediary -  page on the FSC's "Your Finances" website

Central Depository AD

Notifications received by the FSC

Markets in Financial Instruments Act