On this page
What "the stock market" means · Share, bond, fund · What an ETF is · Fees and what they cost · The French wrappers · How an order is executed · Time · What "volatility" means · Concentration, as arithmetic · Tax · Frequently asked questions
What "the stock market" means
A company that needs money has two ways of raising it from the public: selling a part of itself, or borrowing. The first produces a share, the second a bond. The stock market is where those securities, once issued, change hands between investors.
Two moments not to confuse. On the primary market, the company issues its securities and receives the money. On the secondary market, the one discussed day to day, securities trade between investors and the company receives nothing: your purchase pays the seller, not the company.
Share, bond, fund: three different building blocks
| Share | Bond | Fund | |
|---|---|---|---|
| What you hold | A fraction of a company's capital | A claim on a borrower | Units of a collectively held portfolio |
| What it can pay | A possible dividend, plus the price movement | A coupon fixed at issue, plus repayment at maturity | Whatever the held securities pay, less fees |
| Who decides | You, holding by holding | You, holding by holding | The manager, or an index if the fund tracks one |
| If the issuer fails | Paid last | Paid before shareholders | Depends on the securities held |
A dividend is not interest: it is decided each year by the company and can be cut or dropped, whereas a bond coupon is contractual. The tracking mechanics are covered in Tracking your dividends.
What an ETF is, and how it differs from a traditional fund
An ETF (exchange-traded fund) is a fund whose units trade on an exchange like a share, and which usually tracks an index instead of being run by a manager picking securities.
- Trading. An ETF is bought and sold continuously during the session, at a quoted price. A traditional fund is bought at its net asset value, computed once a day after the close: the order is placed without knowing the exact price.
- Management. An index ETF replicates a list of securities defined by a public rule. An "active" fund rests on a manager's choices, which can depart from the index in either direction.
- Fees. In both cases they are taken annually out of the fund's assets, but the levels are not of the same order. That is the subject of the next section.
Two families change taxation and tracking: a distributing ETF pays out the dividends of the securities it holds, an accumulating ETF reinvests them inside the fund. The guide devoted to ETFs details these share classes, how to read the key information document and the risks the structure carries. And a synthetic ETF reproduces the index through a swap with a bank counterparty instead of holding the securities, which adds a counterparty risk described in the prospectus.
Fees: where they sit, and what they actually cost
We compare no products here. What follows is the mechanism: where to read fees, and how they compound over time. Four layers stack up, and they are not documented in the same place:
| Fee | Charged by | Where to read it |
|---|---|---|
| Brokerage, on each order | The broker | Its price list |
| Custody, annual | The broker | Its price list |
| Ongoing charges of the fund, annual | The fund itself | The KID (key information document), "costs" section |
| Entry or exit charges, if any | The fund or the distributor | The KID, and the subscription form |
The point the arithmetic makes visible: annual fees are subtracted from the return every year, so they compound too, in the opposite direction. On €10,000 over thirty years, with an assumed return of 6% a year:
What this chart does not say
It does not say that a low-fee product returns more than another one: the return itself is not known in advance and is not the same from one product to the next. It says only this, which is arithmetic: at equal return, one point of annual fees costs roughly a quarter of the result over thirty years.
The French wrappers: the rules, not a ranking
A wrapper is a tax container. The same ETF is not taxed the same way depending on the wrapper holding it. Here are the rules, with no value judgement:
| Wrapper | Contribution cap | What it can hold | Duration quirk |
|---|---|---|---|
| PEA | €150,000 | Eligible shares and funds: securities of companies in the EU or EEA (Norway, Iceland, Liechtenstein), and funds meeting the 75% eligible-assets threshold | Except for statutory exceptions, a withdrawal before 5 years closes the plan |
| PEA-PME | €225,000 combined with the PEA | Eligible small and mid-cap securities | Same 5-year rule |
| Securities account | None | Anything the broker lists | None |
| Life insurance | None | Euro fund and the unit-linked options the contract offers | Lighter taxation after 8 years |
| PER | Annual deduction ceiling | Depends on the contract | Locked until retirement, apart from the listed exit cases |
These rules change
Caps, rates and eligibility conditions come from the annual finance act and are amended regularly. The figures above describe the law as it stands at the date shown at the foot of this page. Check them at source before acting.
One point often misunderstood: switching holdings inside a PEA is not taxed. Selling one line and buying another within the plan triggers no tax; it is the withdrawal out of the plan that counts. The detail is in Capital gains: the weighted average cost.
How an order is executed
An order is not an immediate purchase at the displayed price: it is an instruction sent to the market, which matches it against opposing orders.
- A market order executes at the best available price, with no guarantee on that price.
- A limit order sets the maximum price to buy, or the minimum to sell. It guarantees the price, not the execution.
- The order book stacks the bids and offers. The gap between the best bid and the best offer is the spread: it is a transaction cost, even when brokerage is free.
The price shown on a free site is often delayed, typically by fifteen minutes. That is not a defect, it is how market data is distributed.
Time: why the curve is not straight
Interest, dividends and gains that are not withdrawn go on to produce a return of their own. Growth is therefore not linear, it accelerates. On a constant monthly contribution of €200 over thirty years, the last decade brings 51% of the final result, for the same effort as the first.
The mechanism, the multiplication tables and what those calculations do not say are detailed in Compound interest: why wealth does not grow in a straight line.
What "volatility" means
"Risk" covers several things. Volatility is one of them, and it is measurable: the size of the swings around the trend. It says nothing about the destination, only about how rough the journey is.
The two paths below start at €10,000 and reach the same amount after thirty years. One rises by 6% every year; the other goes through a worst year at −24% and a best at +34%:
Two factual consequences. First, an annual average does not describe what you live through: between years 10 and 15 the value stalls, while the average still looks fine. Second, the order of the years matters: two return series with the same average do not give the same final result when contributions are spread over time. That is the subject of the guide on dollar cost averaging, which works out what spreading does to the price paid.
Other risks are not volatility: the issuer failing, illiquidity in a security you cannot sell, currency when the security is denominated in another currency, the counterparty risk of a synthetic ETF. None of them shows up on a price curve.
Concentration, as arithmetic
The weight of a holding determines the effect of its move on the total. Nothing else comes into it; it is a multiplication:
| Weight of the holding | If it falls 30% | If it doubles |
|---|---|---|
| 5% | −1.5% on the total | +5% on the total |
| 10% | −3.0% | +10% |
| 25% | −7.5% | +25% |
| 50% | −15.0% | +50% |
It is symmetrical: a holding that weighs heavily amplifies rises as much as falls. Knowing what each holding weighs is a matter of measurement, not opinion.
Tax: where to find it
- The capital gain, due at the time of sale, computed on the cost basis. In France the legal method for securities is the weighted average cost: see the detailed calculation.
- The dividend, taxed in the year it is received, with possible withholding for a foreign security: see Tracking your dividends.
- The wrapper, which alters or defers the previous two, under the rules above.
Frequently asked questions
Do you need a lot of money to start?
No, mechanically speaking: most brokers accept orders of a few tens of euros, and ETFs are divisible into low-value units. Fixed per-order fees, where they exist, do weigh proportionally more on a small amount: €2 of brokerage on a €50 order is 4%.
What is the difference between an ETF and a share?
A share is a single security issued by one company. An ETF is a fund holding many securities, whose units trade like a share. Buying an ETF means acquiring a fraction of a basket; a share, a fraction of one company.
Can an ETF go bankrupt?
The securities a fund holds are kept separately from the management company's balance sheet: its failure does not wipe out the fund's assets. An ETF can, however, be closed by its issuer, in which case units are liquidated and repaid at their value at the time. And a synthetic ETF carries a counterparty risk, described in its prospectus.
Why is the displayed price not the one I got?
Because a free price feed is usually delayed, and because an order executes against the order book, therefore at the best price available at that moment, spread included.
Are dividends guaranteed?
No. A dividend is decided each year by the company and can be cut or dropped. A bond coupon is contractual, which does not remove the borrower's default risk.
What happens on a withdrawal from a PEA before 5 years?
Except for statutory exceptions, a withdrawal before 5 years closes the plan, and the gains are taxed. After 5 years a withdrawal no longer closes it, and gains no longer bear income tax, only social charges. These are the rules in force at the date of this page.
Does a foreign securities account have to be declared?
Yes: holding an account abroad carries an annual reporting obligation, regardless of any gain. The details are on the tax authority's website.
Doing the calculation on your own figures
Everything above is general mechanics. What concerns you depends on your holdings, your contributions and your wrappers. PulseMyPortfolio computes that on your device: valuation, cost basis on a weighted average, capital gains, dividends, net worth including liabilities, and projections whose limits are explained here.
To start from your existing statements, see Importing broker statements. For the vocabulary, the glossary. For what happens to your data, Financial data and local operation. For wealth outside the market, Calculating your net worth and the outstanding principal of a loan.
PulseMyPortfolio is a tracking and analysis tool. It describes mechanisms and computes on your data; it does not steer any investment decision, and we are neither a financial investment adviser nor certified by the AMF. Last updated: 26 August 2026.