The thought of making money online through stocks trading is attractive to a lot of people. However, it is important for you to know what you are doing before venturing onto this field.
This post is aimed at introducing you to the concept of trading stocks, so that you can get started and earn a living from it. Look out for the following points.
- What are Stocks
- How do Stocks work
- Types of Stocks
- How to get Started with Trading Stocks
- How to make money from Trading Stocks
What are Stocks
Stocks are equity investments that represent ownership in a company. Stocks can also go by the name of “shares” or “equities” which essentially mean you are a (part) business owner.
Read Also: A Comprehensive Guide to Trading Bitcoin
Purchasing company stock comes with certain rights which may include receiving a dividend as well as voting rights at shareholder meetings.
Companies issue shares as a means to raise large amounts of capital. This capital is then used to fund different projects that will ultimately lead to growth and create a return for investors. A company can go from private to public through the issuance of an initial public offering(IPO).
When a company decides to go public, they must also chose 1-4 unique letters (depending on the exchange they are listed on) for unique identification (known as the stock ticker symbol). Sometimes, companies can even get creative when it comes to choosing their ticker symbols.
The stock price of a company that has gone public is simply the market’s determination of the company’s value. That value is dependent on its assets, its current profits, and its expected future profits amongst other things.
Although the process of raising capital through stock offerings is a great means for a company to achieve rapid growth and expansion, there are also downsides as well.
Aside from the high fees paid to be listed on an exchange, public companies must disclose their financial reports, abide by certain regulations and face constant pressure and scrutiny from shareholders.
How do Stocks work
Companies sell shares in their business to raise money. They then use that money for various initiatives: A company might use money raised from a stock offering to fund new products or product lines, to invest in growth, to expand their operations or to pay off debt
Companies typically begin to issue shares in their stock through a process called an initial public offering, or IPO. (You can learn more about IPOs in our guide.)
Once a company’s stock is on the market, it can be bought and sold among investors. If you decide to buy a stock, you’ll often buy it not from the company itself, but from another investor who wants to sell the stock. Likewise, if you want to sell a stock, you’ll sell to another investor who wants to buy.
These trades are handled through a stock exchange, with a broker representing each investor. Many investors these days use online stockbrokers, buying and selling stocks through the broker’s trading platform, which connects them to exchanges. If you don’t have a brokerage account, you’ll need one to buy stocks
Types of Stocks
There are two main types of stocks widely available for purchase: common stock and preferred stock. Common stock offers you a piece of a company along with voting rights.
With common stock, you are aiming for capital gains along with the collection of dividends, although there is no obligation for companies to pay common shareholders a dividend. A dividend is a cash disbursement of some of their earnings back to shareholders, or, a kind of reward for investing.
Preferred stock, however, works a little differently. For one thing, you probably won’t get a vote with your share. In exchange for voting rights, preferred stock guarantees you more access to financial advantages.
Such as, if a company is going to pay a dividend, it is going to pay its preferred stockholders first. Common stocks are generally riskier than preferred stocks. It is recommended to have a good mix between common and preferred shares in your portfolio, depending on your investment strategy.
Although these are the two most common types of stocks, it is also possible for companies to customize different classes of stock in any way they want. Using this type of stock classification is usually due to a company wanting the voting power to remain with a certain group of people (such as the case with Facebook).
This can be done by offering more votes to a certain class of stock over another. When there is more than one class of stock, the classes are typically designed as Class A and Class B. For example, Warren Buffet’s Berkshire Hathaway offers both Class A (BRK.A) and Class B (BRK.B) stock.
How to get Started with Trading Stocks
Choose a Broker
If you haven’t already opened a brokerage account with a respected online stock broker, do it now. Read our guide to choosing a low-cost stockbroker and open an account so you can begin trading stocks. Also, note that there is a difference between a prime brokerage and other brokers.
Invest in Yourself
Investing in yourself is one of the best possible investments you can make. While you might not be able to pinpoint an actualized return on investment, there’s no money that’s better spent. Invest in yourself. Invest in your education. Learn. Adapt. Grow. Discover what you’re passionate about
There are loads of money-making courses on the internet. The hard part is choosing the right one. From ebooks to social media marketing, search engine optimization and beyond, the possibilities are endless.
While many money-making gurus might pop up on social media, not all courses are created alike. Spend time doing your due diligence and research to choose the one that’s right for you.
Start researching stocks
Your account is open, and you’re ready to start investing. What’s next? Picking stocks, of course, and that’s the hairy part.
Most traders start by doing a thorough analysis of a company, looking at public information including earnings reports, financial filings and SEC reports, as well as outside research reports from professional analysts. Much of this should be provided by your broker, along with recent company news and risk ratings.
Start slowly, picking one or two stocks and investing a set amount of money that you are prepared to lose. You can plow gains back into the stock — or into other companies — but don’t add more money to the pot until you know what you’re doing and can put research into other companies.
Make a Trading Plan and stick to it
Investing can be emotional, particularly for those new to the game. Losing money doesn’t feel good, and it’s easy to panic and pull out at the wrong time. It’s also easy to get swept up in the excitement of what feels like a winning stock.
That’s why it’s important to plan how much you want to invest at what price, and determine how far you’re willing to let a stock fall before you get out.
Using the right type of trade order can help you stay on plan and avoid emotional responses. For example, stop-loss orders trigger a sale if a stock drops to a certain price, which can minimize risk and losses.
How to make money from Trading Stocks
Play in the Stock Markets
Day trading is not for the faint of heart. It takes grit and determination. It takes understanding the different market forces at play.
This isn’t something intended for amateurs. But, if learned and learned well, it is a way where you can quickly — within the span of hours — make a significant amount of money with a relatively small investment.
There are also ways to hedge your bets when it comes to playing the stock market. Whether you play the general market or you trade penny stocks, ensure that you set stop-loss limits to cut any potential for significant depreciations.
Now, if you’re an advanced trader, you likely understand that market makers often move stocks to play into either our fear of failure or our greed. And they’ll often push a stock down to a certain price to enhance that fear and play right into their pockets.
When it comes to penny stocks, this is further exaggerated. So you have to understand what you’re doing and be able to analyze the market forces and make significant gains.
Pay attention to moving averages. Often, when stocks break through 200-day moving averages, there’s potential for either large upside or big downside
Trade cryptocurrencies
Cryptocurrencies are on the rise. While trading them might seem risky, if you hedge your bets here as well, you could limit some fallout from a poorly-timed trade. There are plenty of platforms for trading cryptocurrencies as well.
But before you dive in, educate yourself. Find courses on platforms like Udemy, Kajabi or Teachable. And learn the intricacies of trading things like Bitcoin, Ether, Litecoin and others.
While there are over 3,000 cryptocurrencies in existence, only a handful really matter today. Find an exchange, research the trading patterns, look for breakouts of long-term moving averages and get busy trading. You can use exchanges like Coinbase, Kraken or Cex.io, along with many others, to make the actual trades.
Trade Commodities
Trading commodities like gold and silver present a rare opportunity, especially when they’re trading at the lower end of their five-year range.
Metrics like that give a strong indication on where commodities might be heading. Carolyn Boroden of Fibonacci Queen says, “I have long-term support and timing in the silver markets because silver is a solid hedge on inflation. Plus, commodities like silver are tangible assets that people can hold onto.”
The fundamentals of economics drives the price of commodities. As supply dips, demand increases and prices rise. Any disruption to a supply chain has a severe impact on prices.
For example, a health scare to livestock can significantly alter prices as scarcity reins free. However, livestock and meat are just one form of commodities.
Metals, energy and agriculture are other types of commodities. To invest, you can use an exchange like the London Metal Exchange or the Chicago Mercantile Exchange, as well as many others. Often, investing in commodities means investing in futures contracts.
Effectively, that’s a pre-arranged agreement to buy a specific quantity at a specific price in the future. These are leveraged contracts, providing both big upside and a potential for large downside, so exercise caution.
Trade Options
When it comes to options, Tom Sosnoff at Tastyworks says, “Trade small and trade often.” What type should you trade? There are loads of vehicles, such as FOREX and stocks.
The best way to make money by investing when it comes to options is to jump in at around 15 days before corporate earnings are released. What type should you buy? Money calls.
Read Also: How Investing can help you generate more Income
The optimal time to sell those money calls is the day before the company releases its earnings. There’s just so much excitement and anticipation around earnings that it typically drives up the price, giving you a consistent winner.
But don’t hold through the earnings. That’s a gamble you don’t want to take if you’re not a seasoned investor, says John Carter from Simpler Trading.
Flip real estate contracts
Making money with real estate might seem like a long-term prospect, but it’s not. There are ways you can take as little as $500 to $1,000 and invest it in flipping real estate contracts to make money fast. How?
Use a system like Kent Clothier’s REWW to first understand how the market works. It’ll then provide you with the data and tools to identify vacant homes, distressed sellers and cash buyers
While most people think that real estate is won by flipping traditional homes and doing the renovations yourself, the fastest money you can make in real estate involves flipping the actual contract itself. It’s arbitrage.
Identify the motivated sellers and cash buyers, bring them together and effectively broker the deal. It might seem odd on the first go, but once you get the hang of it, you can become a mini-mogul in the real estate industry by simply scaling out this one single strategy. It works, and it’s touted by some of the world’s most successful real estate investors
You don’t need to engage in stock trading to accumulate a nest egg. The best way to build wealth is by saving early and often, then investing that money in a diversified portfolio that takes an appropriate amount of risk for your age.
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But if you’re keen to trade, go into it slowly with a base of knowledge and awareness of potential risks.
LASIT has been producing laser marking systems for 30 years, involving almost one-hundred people in design and development activities.
