To an average person without a higher economic education, the mechanism of financial market regulation may seem too complicated and incomprehensible.
But in reality, things are much simpler. Shares in companies are a convenient and simple tool for making money, available to anyone with enough money, and not just for financial tycoons and businessmen like Jordan Belfort, or charming movie moguls.
This article will tell you in detail about investing in stocks, and how even a beginner who has never had experience in such monetary transactions can make money on them.
In practice, it looks like this: companies need additional finance to develop or expand. Then she attracts investors who give the necessary amount, and in return receive securities that confirm the ownership of some part of her property.
The entire amount of issued shares is equal to the authorized capital of the enterprise. The share of each shareholder (individual or legal entity) is determined by the ratio of shares acquired by him to their total number. At the end of a quarter or a year, the results and accounting calculations of the company’s profit are summed up, which is divided in proportion among all shareholders. These payments are called dividends.
Shares are of two types:
- Ordinary – the most common – give the right to direct participation in the life of the company, but do not guarantee regular payments;
- Preferred, the possession of which in most cases does not allow you to manage the company, but provides a permanent dividend based on the results of annual profits.
How to make money on stocks
Most participants in the stock market do not own the necessary number of shares, which would allow them to influence the further development of the company. But even relatively small investments can make a profit. You can earn income in two ways:
- Dividends is part of the company’s net income. The amount of payments is determined based on the results of the final calculation of the proceeds received after taxation at the council of investors. The amounts may vary depending on the decision made at the meeting. Sometimes almost all profits go to dividends, and sometimes shareholders send cash flow to the further development of the company, and dividend payments may be meager, or they may not be at all.
- Securities tradingor exchange rate differences. The price of shares in the market is constantly changing, so there is always the opportunity to buy shares cheaper, and with a sharp jump in its value, sell more expensive. As a rule, the waiting period for an increase in the value of securities is from six months to a year.
Instructions for making money on stocks for beginners
It is better for a beginner without at least minimal theoretical knowledge in the field of finance not to start active trading in shares on the stock exchange.
Without knowledge of the principles of its functioning, it is almost impossible to make a profit. Before you start investing, you need to decide on the following concepts:
- Investing in stocks – where to start.Professionals advise everyone, without exception, to start trading futures, namely with the help of the RTS index. There are reasons for this: this type is subject to the lowest commission. Having understood the basics of the mechanism of the stock market, you can proceed to more serious financial transactions and instruments. For example, binary options or forex. Although there is no single option here, each market participant chooses exactly what brings him the maximum profit, and in whose profitability he is 100% sure.
- Strategy selection. The two most popular trading concepts are passive investing or trading strategies. The stock exchange is not Russian roulette, where the outcome is determined by pure chance. The market works naturally, and in order to start a successful investment, you need to learn the basic rules and principles of its regulation. Basic common strategies:
- Short-term – the closing period of the transaction is several weeks;
- Medium-term – the deal has been open for several months;
- Long-term – positions can be open for a year or more;
- Scalping is based on a large number of transactions during a trading session – from seconds to several hours;
- Swing trading – a certain number of transactions with securities occur over the course of weeks;
- Day trading – positions are closed within one trading session, but within a set period: after a minute, an hour or a couple of hours.
- Depending on the chosen strategy, the appropriate nature of market analysis is selected. There are:
- Fundamental, which is based on a deep analysis of the investing company, and is considered exclusively within the framework of a long-term perspective;
- Day and swing investors are characterized by constant analysis of stock market news;
- For short-term and medium-term strategies, technical analysis is suitable using charts, indices, indicators and financial dependencies.
So, the first thing that actually begins trading in securities is the search for a suitable broker. Their list is endless, and each of them offers its own benefits, just as each has its drawbacks. Here the choice lies entirely with the new trader.
After registration, opening an account and replenishing it with capital, access to a personal working terminal is opened. It searches for a suitable company for trading its shares.
Another option, as mentioned earlier, is to receive dividends.In this case, you need to buy shares from a trusted and reliable company that can guarantee stable interest payments. Here, too, a deep analysis and assessment of future prospects is needed so that, based on the results of the past year, it would be possible to receive good revenue that will cover the initial costs.
How much do newbies earn on the stock exchange
There are only two limits, but rather, regulators of the amount of final income:
- Down payment;
- Motivation and desire to work and earn.
From experience, we can say that the second, and not the first point, is the determining factor in possible profit. Only the ability to timely and reasonably choose the time for selling and buying shares forms success on the stock exchange. Sometimes there is an increase in securities by 100%, 200% and even 300% in just a few days, which allows us to confidently say that you can increase your capital quickly and efficiently in the stock market.
The path of a successful investor begins with small transactions and relatively low profits. It is they that make it possible to painlessly understand the principle of work, master the right strategy and learn how to correctly analyze the situation on the stock exchange.
Advantages and disadvantages of investing in stocks
Future traders need help to organize their activities. A sound assessment of all the pros and cons can insure against typical mistakes and a misunderstanding of the functioning of the market.
The main advantages of such earnings:
- It is possible to trade on the stock exchange even with a relatively small starting capital;
- The shares of the world’s largest corporations are highly quoted (in professional slang they are called “blue chips”). Due to their absolute liquidity, such securities can be sold at any time, instantly turning into money without any loss;
- The constant development of market technologies expands the horizons for trading. Already now, ANY person can trade on the stock exchange with the help of brokers, provided that he has at least a minimum capital for buying shares and access to the Internet;
- Large investors who have acquired a large package of securities have the opportunity to hold senior positions in invested companies and vote for decisions in their own interests;
- The speculative method of earning is safer than the others, because it has either little or no leverage.
But the harsh realities of the stock and currency markets show that not everything in this industry is so rosy. Investing in stocks has its own disadvantages:
- This is a risky type of income – behind the high income of one investor is ALWAYS the bankruptcy of one or more other traders;
- In the context of the economic crisis, stocks quickly fall in price, but the process of recovering and increasing their value takes much longer. Sometimes it takes years;
- The need to form an investment portfolio is due to the high risks of capital loss during the trading period;
- Some factors of stock price fluctuations, such as political situations, cannot be predicted with high accuracy;
- Without the availability of theoretical knowledge and practice, speculation on the stock exchange most often brings losses.
Tips and useful information
It is impossible to learn trading quickly. The lion’s share of experience consists of small or large failures and successes in the financial market. A myriad of free online courses for investors will provide only a superficial knowledge of the basic principles of trading and basic operations.
It is ideal to have the constant support of a mentor – a mentor and a professional in the field of investing and speculating in the market. And, of course, the foundation is practice. It is possible and necessary to avoid financial losses. Many brokers offer a demo account service, where you can safely conduct the first transactions and understand the mechanism of operation.
Most successful traders share their experiences on their own internet blogs. There they talk about the initial stages of their professional development, share secrets and tricks.
Specialized forums are also available on the Web, where the situation on the exchange is constantly discussed, or the effectiveness of a particular strategy. There you can also get support and guidance from successful investors, ask for advice and help.
Success stories
One way to progress is to assimilate the material and learn from the mistakes of others. It is impossible to learn everything in a short period of time. Plus, constant changes in market conditions improve and modernize its structure.
From the biographies of successful traders, you can learn a lot of useful information, get inspired and conquer financial peaks. Many of them have published books in which they share their professional secrets.
For example, one of the most famous Russian traders, Alexander Elder, outlined his entire success story and personal conclusions about the functioning of the market in “Trading with Dr. Elder. Encyclopedia of the stock game.
Another world-famous stock trader (who, by the way, has always followed a short-term strategy in trading) is Larry Williams. Starting with a start-up capital of $10,000, he grew it to $1.1 million in just one year. After 40 years of active work, he ended his financial career and now provides training and training in trading for everyone.
The name of Warren Buffett is probably known to those who have never traded stocks. In 2008, he became the richest man in the world according to Forbes magazine, surpassing even his golf buddy Bill Gates. Many believe that the talent for successful trading was given to him at birth. It is impossible to explain this phenomenal professional “flair” otherwise.
And the title of the most famous and largest holding company has been held for many years by the American corporation Berkshire Hathaway,which, even in the harsh conditions of a falling corporate profitability index, has achieved an increase in the percentage of the value of its shares.
