Table of Contents
How to make money in stocks? This is one of the questions that beginner investors ask themselves. Anyone who is beginning his adventure with the stock market would certainly like to multiply his capital and not lose. Therefore, it is important to be properly prepared and gain knowledge about investing. Stocks are the most popular financial instruments, and most beginning investors start precisely by investing in stocks.
How to make money in stocks?
Investing in stocks is one of the most popular ways to allocate your savings. Brokerages from all over the world have made stock trading convenient, fast and cheap. Many people who are considering investing in the stock market are sure to wonder what is the stock market, what is trading on it and how to make money in stocks?
What are stocks?
Stocks are securities that represent a portion of a company’s value. There are also so-called shares, which are theoretically something different from stocks. They can refer to other types of investments, such as in ETFs, mutual funds or private companies. Shares, on the other hand, refer only to securities that are traded on the stock market. On a day-to-day basis, however, stocks and shares are often used interchangeably.
Companies issue shares to obtain funds for further development and to run the company. Shareholders, on the other hand, are entitled to receive dividends, as well as voting rights at the General Meeting of Shareholders, since in practice they become the owners of a certain part of a particular company.
An important point that is needed to understand the stock market is to acquire knowledge of what shares are and actually how it is that one can acquire a part of a company. Investing in stocks is possible for all investors from all over the world, as public companies are listed on the stock market.
What is a stock exchange?
As mentioned above, companies can be listed on the stock exchange. The procedure for turning a private company into a public company is called an initial public offering. When a company becomes public, its shares can be bought as well as sold on the stock exchange, or secondary market.
So the stock market acts as an intermediary – it is a centralized trading place where sellers and buyers transact. The stock market used to have a physical form, but thanks to technological advances, it can only be in electronic form.
The price of a particular stock can move up as well as down, and fluctuations are caused by swaps in supply and demand. As a rule, if a company is running a successful business with a promising future, its share price should rise. However, share prices are also influenced by other sensors, such as macroeconomic data, which affect major economies, the level of interest rates or market sentiment, which reflects major market news.
Experienced investors and analysts are constantly trying to identify the stocks of the best companies in which to invest capital. Therefore, it can be assumed that in the long term, stock prices reflect all available information for investors.
How to buy stocks?
Earning money in stocks, of course, involves buying them. In order to access the stock market, an investor must set up a brokerage account. Currently, investing in stocks is very easy, and investors can buy shares with a few clicks.
Before that, however, it is necessary to choose the right broker. The best one will be one that not only allows you to trade stocks in a convenient and inexpensive way, but also supports its clients with education training, as well as providing them with the latest market news. Choosing the right broker is a key issue for any investor.
Once the brokerage account is opened and funded, the trader can make the first trades and begin to control and monitor his positions. It is also recommended to get acquainted with the investment platform in advance. Usually brokers offer good tutorials, but at the same time they customize their trading platforms in such a way that they are increasingly intuitive.
Investing or trading?
At the beginning of your journey with the stock market, it is useful to know the differences between investing and trading. Although the two terms are often used interchangeably, they represent two different approaches to the stock market.
Investing in stocks is usually associated with long-term investors using a buy-and-hold strategy (read also: Day trading and swing trading). They aim to select promising companies and hold their shares for months or even years. These investors pay attention to the fundamentals of specific companies or entire sectors.
In general, two types of investments can be distinguished – in growth companies and value companies. As for the case of the first one, it is about companies that are expected to grow earnings dynamically in the future. The shares of this type of company may perform better than the market, so investors are in a position to profit from them.
There are also value companies, which are usually described as companies with good fundamentals and an established position. These types of companies often pay dividends, which provide another source of income for investors.
Trading, on the other hand, is often seen as a short-term approach. Stock market traders usually intend to take advantage of quick price movements. For example, they may buy a company’s shares before the release of its earnings report, or shortly after the price of those shares suddenly dropped in hopes of a rebound. Some traders hold their positions for less than a day, which is called day trading.
Traders are usually experienced market traders who spend a lot of time monitoring the market and looking for market inefficiencies. Traders use sophisticated investment strategies, and stick to their rules, using, for example, a stop loss order at every opportunity. Besides, they may also speculate that the stock prices of a certain company will fall, and this is called shorting stocks. Some investors who have sufficient capital and the right market experience engage in stock investing to earn a living.
Fundamental analysis and technical analysis
In order to learn how to make money in stocks, you need to know the two main approaches to investment, namely technical analysis and fundamental analysis (read also: How to invest in the stock market or How to start investing in the stock market). Both one and the other concepts have their supporters. Some investors believe that fundamental analysis is the only right approach, while others believe that technical analysis gives better results. However, it is usually the case that the truth lies in the middle.
Fundamental analysis is a method of assessing the intrinsic value of a stock. Investors tend to analyze the weaknesses and good points of a company, but also shave economic conditions. Individual investors often build complex models to calculate the target price of a particular stock, taking into account their assumptions about the company’s future earnings. As a result, they are able to see whether a stock is currently undervalued or overvalued. Brokerage houses control and monitor the situation of many listed companies, in turn, analysis departments very often publish analytical reports, which can be very helpful when it comes to making money in stocks.
Technical analysis, on the other hand, is based on a chart of price movement. Market participants then try to identify repeating patterns and look for various signals to determine in which direction the market will move. Professionals use a large range of indicators so that they can decide whether to buy or sell stocks based on them. Although technical analysis is relatively complicated, novice investors do not need to know everything about it to be successful.
There are a few simple concepts, such as support and resistance levels, volume analysis or moving averages, and mastering them is enough to master stock trading. Among the employees of brokerage houses there are also technical analysts, so that the content of the analysis often includes comments that are based on technical analysis, which can also be helpful when it comes to making money in stocks.
And which approach is the right one and which is better to choose? As a rule, technical analysis is mostly used by traders, while fundamental analysis is chosen by long-term investors. However, this is not entirely true. This is because price movement depends on many factors, including the general sentiment of the stock market, so it is better not to rely solely on one analysis. Using different methods is a better option, and common practice is that fundamental analysts use technical analysis to find the best entry points.
How to make money quickly in the stock market?
Inexperienced people who are interested in the stock market want to make a lot of money in a short time. Not surprisingly, this view has been around for years, and indeed there are individuals who have made a fortune on the stock market. However, these are individuals, and most investors if they make money, it is not very high amounts.
How to make money in stocks? You can either treat this activity as a side business or deal with it as your main source of income. In the beginning, however, it is advisable for an investor to have another stable source of income, and treat buying stock market shares as a supplement.
There is no one-size-fits-all answer to the question of how to make money quickly in the stock market either. Quickly is usually not possible, as you need to learn the basics of investing in the stock market, preferably by opting for an online stock market investing course. You need to learn the rules that govern the market and familiarize yourself with all financial instruments.
Before entering the real stock market, it is also a good idea to practice and test your investment strategy on a demo account or on a free stock market simulator. Such tools offer the possibility to make transactions on the stock market with virtual money, so that in case of a losing transaction, the investor does not lose real money.
Investing on foreign stock exchanges
Currently, all transactions are computerized, that is, buy and sell orders sent over the network. Examples of stock exchanges and the countries in which they are located:
- Warsaw Stock Exchange – has been in existence since 1991, but also existed in the interwar period,
- Warsaw NewConnect, which has been in existence since 2007 and is an alternative market to the WSE. It is designed primarily for smaller companies, as well as new technology companies,
- New York Stock Exchange – in terms of capitalization, it is the largest stock exchange in the entire world. It is located in New York on Wall Street. You can invest there in shares of such giants as Coca Cola, General Electric and General Morors. At this moment, the exchange accounts for more than 30% of global capitalizations,
- Euronext – is based in Amsterdam. Belgian, French, Spanish and Dutch companies are listed there. It is the largest stock exchange in Europe.
How to make money in the stock market over the Internet? How to start investing?
Stock trading should be preceded by gaining at least basic knowledge of the market and how it works. The first step is to open an account at a brokerage office. Information about a particular bureau can be verified on the website of the Financial Supervisory Commission.
A good broker provides an investment platform through which the investor makes transactions (read also: Online investment platform for beginners). It is worth choosing an intuitive tool that will help him make investment moves. Choosing the right platform is important, among other reasons, because if it performs poorly and delays the trader’s movements, it can generate losses. Therefore, it is worth taking some time to choose the right tool.
Once a trader sets up an investment account, he can start trading stocks. First, however, he must deposit money on the minimum deposit. Each broker sets the amount of the initial deposit individually, and in some cases you can deposit any amount you want. It is not necessary to have a large sum of money to start investing in stocks and successfully earn money from auctions.
Earning from stocks – what is worth knowing?
A beginner should learn some basic concepts, such as diversification, liquidity and commissions.
This is a behavior that consists in the fact that instead of allocating all the funds to buy one company, the investor divides them and buys shares each of, for example, 10 different companies. It is worth noting that these companies are different from each other. It is worth ensuring that the rates of return and the risks are as little as possible correlated with each other.
The purpose of diversifying an investment portfolio is to minimize risk. The chance that one company will have problems and, as a result, its stock price will fall significantly is much greater than the chance that a dozen or more different companies will experience similar problems in one. How to make money in stocks?
Precisely by diversifying your own portfolio.
You can diversify in various ways:
- By buying stocks from different companies in a specific sector – in this case the investor is less sensitive to the troubles of individual companies, but is still sensitive to the problems of a specific sector,
- By buying shares of companies from different countries – in which case the investor is less affected by risks that are associated with one specific market, such as changes in the exchange rate or issues regarding changes in local laws that are related to the operations of these companies,
- Buying stocks, but also investing in other asset classes, such as commodities and commodities, real estate, cryptocurrencies, futures. By taking these types of steps, an investor’s portfolio becomes more stable in the face of fluctuations that affect entire markets.
Liquidity is nothing more than the ability to easily buy and sell shares. It is usually related to the size of the company, as well as the interest it enjoys on the stock market. High liquidity is associated with a small difference between the buying and selling price. This means that an investor buys relatively cheaper and sells more expensively than he would do with less liquid companies.
The next thing that is related to the liquidity of companies is the time it takes for an investor’s order to be executed. When it comes to illiquid stocks, i.e. stocks of small companies or stocks of companies that are listed on niche exchanges, one often has to wait until the other party invested in the transaction is found. During this time, the investor’s funds or money are frozen.
Researchers who analyze the factors responsible for achieving positive results in investing, all the time point to the very important importance of minimizing transaction costs. However, fortunately for modern investors, there are brokerage firms that offer stock trading completely commission-free. When choosing a broker, it is worth taking this into account.
When to buy and when to sell stocks?
How to invest in stocks? In fact, how many investors, so many strategies. However, there are 3 trends that most investors fall into. These are:
- Proponents of efficient markets,
- Fundamental analysts,
- Technical analysts.
Investing in stocks passively
The efficient markets hypothesis is a theory that was created by Eugene Fama. According to it, stock prices reflect all the information available on them. This assumption concludes that it is not possible to outperform the market average in any other way than by luck.
Consequently, it is not worth trying, as you can lose a lot of money on commissions. According to them, it’s best to buy a broadly diversified portfolio of stocks and stick to it no matter what happens in the market. According to historical data, this type of approach has yielded roughly a 7% annual rate of return before embracing inflation.
It’s an approach backed by a lot of research and is increasingly popular among those who invest in stocks through ETFs. The advantage of this type of approach is its great simplicity, as it requires virtually no knowledge of the stock market. It is also not time-committing. You simply need to buy shares in ETFs from time to time and that’s it. This allows one to invest until retirement or any other chosen investment goal the investor sets for himself.
They disagree with the main premise of the efficient markets hypothesis, because they believe that the market prices stocks imperfectly. According to them, there are periods when stocks are relatively cheap relative to the business value of a company. Cheap stocks are a good time to buy them, and periods when stocks are relatively expensive are a good time to sell them.
Trading stocks based on such a thesis is to think like a business. Fundamental analysts look for bargains and want to buy successful companies in small amounts (read also: How to invest small amounts of money). Fundamental analysis, in principle, involves estimating the actual value of a company. To calculate this, fundamentalists pay attention to factors such as:
- The macroeconomic environment of the company – this is about the dynamics of the markets in which the company operates,
- The competitive, or microeconomic, environment of the company – its competitive position, the way it is financed, competitive advantages, operating costs, etc,
- The company’s management – whether the personnel who make the most important decisions in the company are properly trained and competent in their own responsibilities,
- The company’s financial statements – on the basis of these, fundamental analysts are able to assess the dynamics of revenue and cost growth, as well as issues that relate to liquidity and debt. They evaluate the cost structure, stock turnover time, profitability ratios, as well as other financial issues.
They select stocks using a price chart and possibly a stock volume chart. Some of them use indicators that draw additional lines and levels on the charts. Price formations, candlestick formations, trend lines, etc. are also used. All techniques are used by analysts to predict future price movements.
How to choose a good broker?
There are many brokers on the market that offer their services and provide an investment platform. Choosing the right one can significantly facilitate investing in stocks. What to pay attention to when choosing a broker?
The investor entrusts the chosen broker with his money, so the issue of security should come first. It is best to opt for a broker that is supervised and regulated by global organizations, such as the FCA, CySEC or the FSC. This will ensure maximum security for the investor and make sure that his money is safe (read also: Safe investing in the stock market).
Fees and costs
This is also a very important issue that every investor is sure to pay attention to. Each broker has an individual price list, which you should familiarize yourself with in advance. Some charge account fees, while others do not. Some also charge for commissions and spreads, while other brokers just charge spreads alone. Trading costs are one of the most important considerations when it comes to choosing a good broker.
How to make money in stocks? By constantly expanding your knowledge. Reputable brokers often offer their clients educational materials that they can use within their investment account. Such a section is very useful and allows users to learn and stay up to date with stock market information.
Beforehand, it is worth checking whether the broker of your choice offers a free demo account. The best brokers provide a free demo account, which users can use for a certain period of time or unlimited. The demo account allows you to get acquainted with the stock market and make transactions without losing your own money.
Financial instruments offered
You should also check what markets and financial instruments a broker offers. The broader the catalog of exchanges and assets, the better. The investor, in particular, should verify that the broker offers those financial instruments that are within his circle of interest.
How to make money in stocks? This is worth remembering
Every investor would like to know the answer to the question, how to make money in the stock market quickly? Some people wonder how to earn USD 200 a day on the stock market? Unfortunately, there is no simple and universal answer, since generating profits or losses consists of many different factors. So, it is worthwhile to implement some important rules for investing, so you can minimize the risk of losing money and strengthen your position in the market.
A cool approach
How to make money in stocks? First of all, without emotion. And although it is not easy, it gives the best results. Successful and professional investors are able to approach investments in cold blood. At the beginning of the adventure of investing, not everyone will be able to approach trading in the stock market without emotion, but it is worth developing this skill.
Investing savings that can be lost
When deciding to trade in stocks, you should be aware of the risks involved. Unfortunately, most novice investors lose their first capital. For this reason, it is advisable to invest only as much as you can lose and it will not affect your expenses and household budget. Do not borrow to invest, as this is a gamble.
Acceptance of investment risk
When investing, you should always remember that risk is inherent in investing in the stock market and it is best to simply accept it. However, there are several methods to minimize them effectively, including diversifying your investment portfolio.
Learning on a demo account
Before playing the stock market, it is a good idea to try your hand at a demo account, which is either free or a stock market simulator. This allows the novice investor to see how the stock market works and whether it is an activity for him. What’s more, he does so without any risk of losing real money, since he is operating with virtual funds. He can even make risky moves and observe the results of his investments without any loss.
Diversification of the investment portfolio
Although this concept sounds complicated, it is about a very simple issue. Diversification consists in the fact that the investor invests capital not in one financial instrument, but at least several different ones. For example, when it comes to trading stocks, it makes sense to invest in a variety of companies from many industries, within the limits of your capital, of course. This way, at the moment, as the prices of one type of stock will fall, the others can rise, which can offset the loss. If an investor put all his capital in only one type of stock, which would lose value, he would lose all his funds.
Invest according to your knowledge
It is recommended that you invest your money only in those financial instruments about which you have knowledge. It is necessary to gain knowledge about the chosen financial instrument beforehand. You can opt for a course on investing in the stock market, which is available both online and in-store. Investing money in financial instruments about which the investor has no knowledge is not a good idea and will probably end up losing capital.
What is worth remembering is continuous learning. How to make money in stocks? By constantly expanding your knowledge of investing. This way you can keep up to date with information about the stock market and the stock market game. It is also worthwhile to expand one’s knowledge of the financial instruments in which he intends to invest funds. One can take advantage of courses that are available online, but also organized in a stationary manner, usually in major cities.
To start making money in stocks, you need to have a plan. Without it, it is not worth starting investing. You can take your own individual strategy abo rely on those that have been created – you can find them on the Internet. One of the most popular is to follow the trend, but many investors choose to take a bottom fishing strategy, or dividend strategy.
Starting without a plan and strategy is not a good idea. It is possible that in the beginning the investor will indeed be successful in investing and generate profits, but this will only be due to the fact that luck favors him.
How to make money in stocks? To learn how to invest in stocks successfully, it is necessary, first of all, to acquire knowledge at the right level. It is also important to choose the right broker, but also to use a demo account to gain at least minimal experience. Earning money in stocks is also influenced by a bit of luck, which, however, an investor cannot control.