If you’re looking for the opportunity to make a little money then it might be worth learning a little about the stock market. You may have heard other people boasting about how much money they have made from other people’s gains on the stock market – you can do it too!
People are put off because they think they need a lot of knowledge to make even a little money – but it’s not as hard as you think to get started, you just need to know the basics.
Table of Contents
What’s It All About Then?
Stocks and shares used to be two very different things but the lines have become blurred and these days it is just used as an overall term for investing in the stock market.
Essentially when you buy stocks you are lending a company some money. If they go on to make money, you will benefit from your investment, and if they don’t you won’t.
So it pays to do your homework and see that the company you are lending your money to knows what it is doing. In short, you own a piece of that company – so you will reap the rewards and risk the losses alongside them.
There is a limited supply of stocks and shares at any one time, and the price of those stocks and shares varies as companies do better or worse. The buying and selling of stocks and shares heavily influence their price – the more desirable they look the higher the price will go.
Rumors are another thing that heavily affects the stock exchange – if a company manages to create enough of a buzz around themselves they may find that more people start to snap up shares and prices will go through the roof.
Be Prepared to Lose Some Money to Start With
It’s common for first-time investors to lose as much as 20% almost straight away. Don’t be put off by this. You just have to play the long game, and always keep your eye on what is happening. Leave any investment for a good two to three years to see how it behaves – you will never win or lose a fortune that quickly.
Nerves of Steel
There is no guarantee that you will ever get your initial investment back. If you are looking for a safer investment it’s better to look into bonds that guarantee your initial stake. But, if you are brave and clever, then you stand to make a lot more money over a longer period of time on the stock market.
Practice Makes Perfect
If you want to get the hang of it without any risk then get involved with a Fantasy Stock Market game – easily found on the internet. You will learn all the principles of the stock exchange without actually having to part with any money. It’s a great training ground and your mind will begin to work in the way it needs to make cash on the stock exchange.
So get clued up, get yourself some stocks and shares and start playing the game!
Top Reasons To Invest In The Stock Market
Investment experts believe that the stock market is still a good place to invest and get great returns in the long term. Global economies have been through their worst phase in the last few years and there have also been a few markets collapses which have led retail investors to believe that stocks are no more a smart investment option.
If you are also a bit wary of investing in stocks and think you want to invest your money elsewhere think again. Financial experts still believe that investing in stocks can be one of the best ways to secure your financial future in the long run.
Here are the top reasons to invest in the stock market and work towards a secured financial future:
1) Good return on investment
Investing in the stock market can get you great returns. You may even earn huge profits if you pick the right stocks to invest in which is otherwise impossible in any other form of investment.
2) Many investors wait for a good time to invest in stock markets.
There is never a wrong or right time to invest in stock markets. Stock markets may look expensive at times which may drive away retail investors but the fact is that if you pick the right stocks you can always earn a profit over the long term.
3) Regular income
Investing in stocks gives you the option of earning regular income in the form of dividends. Companies share a part of their profit to their shareholders which are called dividend. You may earn it annually or multiple times in a year. You may not earn a dividend if the company makes losses.
4) No lock-in period
Many investments have a period during which you can’t withdraw your money or get any profits and this period is called lock-in period In stock markets there is no lock-in period and you can earn profits at any time by selling the shares of the company you have invested in.
5) Better control
When you invest in the stock market you have better control over the investments as you can decide when and how much to invest and when to sell the shares. This is not possible with other forms of investment.
6) Low start-up cost
One of the best things about investing in stock markets is that you don’t need a huge amount of money to get started. You can start with a small amount of investment and still make profits on your investment.
7) Simple trading process
Today the trading process has become much simpler with the advent of online trading. It has become much easier to trade in the stock market. Buying and selling stocks can be done with just a few clicks of the mouse.
8) Liquid investment
Stocks are a liquid form of investment and you can sell and buy them easily based on the state of the economy and that of the company you have invested in. This is not possible with other forms of investments like bonds, bank deposits or debentures.
Diversification is the key to becoming a successful investor as you reduce your risk of investments. Investing in stocks gives you the option to diversify your investment portfolio as you can invest in a variety of companies spread across various sectors.
10) Be a part of growth of economy
When you invest in stocks you make your contribution towards the growth of the economy while earning great returns on your investment. This is not possible in other forms of investments.
The 5 Most Common Investment Mistakes
The world of investments offers a wealth of opportunities. Whether you are looking to generate an income, to have a little fun, or to save for your retirement, you’ll find that there are options that suit your needs.
But it’s also true that it can become a little too easy to get carried out. When you hear about those who have made fortunes over the years, it’s fairly easy to fall into that trap of assuming that you will be able to achieve the same. Although anything is possible, it’s likely to take an intelligent approach, if you want to get the really impressive results that you desire.
So how can you set about putting a successful strategy in place? It may help to be aware of the biggest mistakes that others tend to make.
Listening to poor advice
It can be tempting to invest money, following a hot tip. You may have heard, for example, that a new gold mine is about to be opened, or that a company is set to make a major research breakthrough that will lead to increased profits.
Before you rush in with your money, stop and consider where the advice is coming from. Can that advice really be trusted? Can you be sure that the individual offering the advice does not have an ulterior motive for doing so?
A lack of research
Listening to poor quality advice can be a problem, as can decisions made without doing enough research. I would suggest that you should never be investing money in a company, or industrial sector unless you have a full understanding of what’s involved. Without that knowledge, how can you possibly be aware of any lurking pitfalls?
An unbalanced approach
Professional investors will generally look to have a balanced portfolio, with such an approach enabling them to spread the level of risk that’s involved. By avoiding having too high a proportion of the capital invested in a single entity, it means that there is less chance of a complete disaster occurring.
If that’s an approach that works for the professionals, then it’s something that you may feel is worth taking into account.
Investing too much money
Sometimes a particular investment can seem so tempting that you can’t help plowing in more funds than you originally intended. What happens, however, when you find that you don’t have enough money left over to pay the mortgage, or to cover the bills that you encounter?
Although investing money can generally be seen as a wise thing to do, the truth is that it should not come at the expense of other actions that take a higher priority in life. That’s something that is well worth remembering.
Investing with friends
This is only a personal viewpoint, but my own feeling is that money and friends don’t tend to mix particularly well. In fact, involving friends in an investment strategy is likely to lead to damage being done to that friendship.
I believe that this is a risk that should be avoided. Ensure that you separate money and friendship.
The Lowdown On How The Stock Market Operates
In these uncertain times, stock markets have become very unpredictable. Global economic worries are scaring investors away from traditional investments due to the fear of losing money. Even the most robust blue chips are on a knife-edge offering only dividends as a way for investors to profit.
With this in mind, I thought it was time to write about how the markets work, what they are about and why they react to economic news.
It’s a Market!
The stock market is no different from any other market. Supply and demand drive price changes. Stocks move up when demand is high yet the stock is in short supply and stocks will move down when there’s more supply than demand.
As there becomes more of a company’s stock available a market maker in the trading pit needs to sell it. After all, this is what he does for a living, he makes a “market”. To tempt buyers out of the woodwork he lowers his prices to make it more attractive.
If buyers like his prices they will buy. This will stabilize the price but if there are no buyers then he will have to lower the price again until he finds the level at which buyers see the value. When a company has negative forecasts or has recently announced profit warnings prices may have to fall a lot more for buyers to see the value.
It’s the same in any marketplace. When there is more of an item for sale you can usually pick it up cheap somewhere, the stock market is no different.
Alternatively, when a stock price moves up it means there’s very little of a company’s stock to sell to his buyers. To create a market he needs to give investors a better price for their stocks with the knowledge that he can offload it quickly at an even higher price to eager buyers.
The Markets Look Ahead
There is a myth in the markets that you need to invest in companies who have recently produced strong sets of results. Although it’s always wise to check the recent earnings on any company before investing, most of the time the market has already priced in these results well ahead of them being announced. In fact, it will have priced them in at least six months previous.
The stock market is always looking ahead. For this reason, investors also need to look ahead and find out why the stock price is moving the way it is. Is the company is forecast to have a good year? Is the sector it operates in strong? Are there outside factors like exchange rates which can benefit the bottom line?
These are just some of the things the market sees. Prices are driven by speculation and possibility. Occasionally a stock can drop or rise dramatically when a shock announcement is released which goes against what the market was predicting. One piece of advice is never to fight the market.
Go with the herd and follow its direction, stay out of stocks which are trending down, buy into stocks that are moving up. It really is that simple.
Don’t Buy Bear Markets!
Time after time investors lose money by selling stocks when there is a bull market and continue to invest their profits after the markets have turned. Do yourself a favor, take your profits and leave the markets when there are uncertainty and crisis. Use these times to research a batch of new investments with great prospects for when it’s clear the markets are booming again.
No matter how good a company is doing (and is forecast to do) if the markets are dropping like a stone you will find yourself swimming against the tide and giving your money to those market makers in the pit who are sitting on bundles of stock.
Wait, be patient, there is plenty of time. During a bull market when a stock starts to move up often it goes much further than most think it will.
Know About Convertible Preferred Shares
People usually avoid buying shares and stocks just because they because they don’t like the risk of losing money. Financial experts reckon that it’s not wise to opt out such investments. According to them, avoiding stocks altogether means you are missing out on a remarkable opportunity to make a good profit.
If you too are an investor with the same concerns, then let me tell you about a secure investment option that may help solve your problem. You can make confirmed earning by investing in Convertible Preferred Shares. This option gives assurance of a fixed rate of return with a premium opportunity for capital value appreciation.
The following post is designed to help educate you about these shares. It will also help you determent when is the right time to convert your shares for a maximum profit.
What are convertible preferred shares?
Convertible Preferred Shares are the shares that give investors an option to convert their preferred shares into ordinary equity shares after a predetermined time. These shares are fixed income securities that the investors turn into a certain number of shares. The fixed income component gives investors the security of steady income as well as ensures protection to the investment per se.
What are the benefits associated with convertible preferred shares?
The biggest benefit of buying convertible preferred shares is that it allows you to earn a fixed income. After a particular time span, as an investor, you are in a position to convert these preferred shares into equity shares.
These shares are really attractive for all those investors who want to be a part of growing companies while protecting themselves from a drop in capital value even if the price of the shares does not live up to their expectations.
Why do companies issue convertible preferred shares?
If investing in convertible preferred shares is such a nice option for investors, what is in it for companies and why do they issue these shares? Companies issue convertible preferred shares because form them, it is a better way to raise capital as compared to the option of equity debt financing.
Therefore, companies issue these shares even when their stock prices are low, or when they do not receive good ratings from credit companies. Because of the above-mentioned reasons companies are not in a position to get loans at reasonable interest rates so they deem it best to issue convertible preferred shares.
When companies offer these shares, they obtain finance at the lowest possible interest rate by offering fixed income to their shareholders along with the convertibility option on a specific date.
What are the disadvantages of convertible preferred shares?
The disadvantages associated with convertible preferred shares are:
- In case a company liquidates, the investors will lose their preference of being paid before the equity holders.
- The company may make it compulsory for the investors to convert their shares, which is why you must read the investment brochure thoroughly before making an investment.
- The investors lose their entitlement to a fixed dividend after conversion whenever a company declares a dividend in the future. They get dividend just like the other shareholders of the company.
Beware Vice Like Grip of the 3 Biggest Enemies For Investors
It is significant for every investor to deal successfully and overcome the three biggest enemies of the future. These are impatience, greed, and fear.
These three opponents are so commanding and authoritative that they can even split highly experienced traders in a matter of seconds. The best part is that none of us are actually free from these vices. It does not really matter how composed and pretentious we are, we tend to surrender to ignorance, greed, and fear at some point in our lives.
Whereas weathered traders, who are weather-beaten, bloodied and hit by experience can make out when and how to live away from them whereas a new trader who’s just beginning to test the waters will tend to give infrequently into temptation, thereby, ending up losing money quickly.
The upcoming market is very close and revengeful and it can suddenly take away everything in a matter of a few days without giving a penny in return. The three enemies of every investor are:
Fear The Fear
Everyone requires an assured amount of fear so that they can work meticulously in this world. If you are completely fearless, then you tend to take unnecessary risks and once it crosses the restricted limits it can be upsetting and shocking for the investor.
The finest cure for this kind of overstated fear is to perform close risk management. Research all about risk management and make risk evaluation and planning an essential part of your life.
Ignorance Is Not Bliss In Real Life
The second worst enemy of an investor is ignorance. So many times we see that people invest money without undertaking proper market research. They don’t even spend enough time to gain knowledge of the expertise in the game.
It’s imperative to understand that you’re up against seasoned professionals, so be cautious whenever you take the first step. If you are oblivious to your surroundings in the stock market, then you’re going to end up as another fish in these of mirky investors who are all there to make a quick buck, irrespective of how they earn it.
If you are keen to become a good investor you must develop an obsession for learning a lot so that you have complete information about your area of investment and you should develop the finesse of tracking down and associate with others who are aware of what you do not know.
Beware The Unknown Enemy: Greed
Greed is the third most dangerous enemy of every investor. People are extremely gullible and they are stealing other people’s money every day just because of greed. Greed forces people to gaze at the probable profit without reviewing the apparent risks.
The majority of investors immerse themselves in an endless well of greed and fight a continuous battle to keep the vice in control. Professional stock market traders keep their emotions at bay by making a set of operating rules and then evolve the self-discipline to command their daily routines and to keep the emotions in check.
If you are a wise investor, then it is better to make a realistic review of where you are presently placed in relation to ignorance, fear, and greed.
It is certainly not simple to triumph over these three enemies as they reside within you and can dynamically sway your judgments and reactions. But if you try hard you can surely succeed with practice and will not any longer be the apparent hostage of these enemies.
Online Trading Tips
What is happening in the world of online trading is the choice would be investors have in managing their investment account has increased. This would mean investors are no longer limited to the traditional way of managing their investment portfolio where they have to go through a broker, whether they are dealing with brokerage houses or discount brokers.
Online trading resembles dealing with discount brokers where it is the investor who has the final say as to which stocks and other instruments the money kept with the brokerage house will be invested in.
What online trading introduced is the capability of executing the transaction electronically without anyone having anything to do with it. Similarly, verifying the transaction in real time is also possible.
With such a convenience there are always problems that come into the picture because the system could be fast, and when the number of individuals using the system is high it is difficult to be certain as to what exactly would take place when finally the instruction is executed.
What this means is the value of a given stock could go up or down resulting the amount the investor thought to be favorable might not be the exact price that will be charged.
This is due to the involved huge activity that originates from many sources that could affect the execution of the transactions and because of that incurring a substantial loss is possible. There are close to 100 online trading systems that are executing transactions at any given time, on a daily basis.
In a situation such as this what is recommended is investors have to do their homework so that they would know what they are investing in and the kind of risk that could be involved.
Since trading could be unpredictable when what is exchanging hands gets fast, introducing various measures is required to safeguard the investment from the unexpected. One known safeguard to introduce is to put a “limit” order on a transaction and what that will do is whenever a buy or sell is executed it will prevent paying more or less than what is planned in advance.
This means if the transaction is executed in a market order mode if the price goes up more than what was anticipated that price will have to be paid, but if there had been a high limit, any price above that limit will not be executed.
The same applies when selling stock, for example, where if there is a low limit and if the price of a stock goes below that limit because of what takes place, the transaction will not take place. Consequently, this mechanism is essential and introducing it into an investment scheme is highly recommended.
The other aspect to be aware of is even if online trading is instantaneous most of the time, there are times problems could develop. The problem could start from the investor’s modem or the slow connection the investor uses that could prevent a timely execution.
The broker that is availing the online service could also suffer from similar problems. The server it is using could suffer from overflowing because of the high number of users at a given time that could result in a crash, and when that happens it is possible to miss a lucrative opportunity.
This implies that there could always be unexpected downtime that will prevent a transaction to go through on time and when it goes through finally, because of the change that could occur, the outcome could be unanticipated. At times, traffic on the Internet could also be heavy and could delay an execution. Ameliorating such problems is possible by putting a limit on a transaction.
It is also helpful to know what kind of other options are on offer by the online broker when such occurrences appear. Some of them have a mechanism that allows using a touch-tone telephone, whereas some might allow faxing or emailing in the orders.
When all these fail, there is no other choice other than resorting to the traditional way of trading, which would involve calling the broker over the telephone. Yet, all of these alternatives might have an additional cost that is helpful to be aware of in advance.
Avoid Making Costly Mistake
There are a few things that would confuse investors and could cost them more than they planned. Sometimes, because of the delay that could be created, they might not be in a position to verify if the transaction they executed had gone through or not, and when they are not certain they might try to do it again.
This has to be avoided simply because it is part of the initial agreement and there could be situations it could be costly when for example, selling an already sold stock might be involved and it has a penalty that goes with it unless it is corrected quickly.
Another similar incident to be wary of is when canceling a transaction because the execution might not take place and without being certain engaging in another transaction will have to be prevented.
When using a cash account a purchase should be paid at the time of the purchase, however if that is not the case and if the investor sells that particular stock quickly without making sure that it was paid for, it will be labeled as freeriding and it is a violation of the provision the Federal Reserve Board has put in place that could lead to the freezing of an account for 90 days by a broker, but it could be corrected if payment is made quickly.
Margin Call Alert
The other problematic area is what is called a margin call where at the time of trading if the transaction surpasses the security margin that is deposited in the account the investor will be notified to bring the account back to normal.
All brokerage houses have such requirements. When that happens the brokerage house is legally entitled to sell any or all of the securities in the account to bring the amount to the required level, and what this means is the margin call is a courtesy and is not legally required. This is an important component of stock trading keeping in mind is useful since it could be costly.
Once investors are over the basics, the technicalities will kick in and they require doing homework. The investor has to decide what kind of plan to implement, is it going to be long term, mid-term, or short-term, because now it is possible to become a daytrader if an investor is comfortable with the risk level and can meet the requirements.
Once that part is decided some experts advise it is beneficial to focus on a specific sector, at least for a given duration of an investment plan, and then diversify in that sector as much as possible. Avoiding putting all eggs in the same basket is essential, in case something happens to that particular stock, and this has to be followed through in spite of how promising the performance of stock might seem.
Knowing When to Buy and Sell
Another key component of a good investment practice to mention is the process of identifying a good point either to buy or sell and when an investor has become knowledgeable in spotting such points, there must have been enough exposure to the technical analysis that is key in making a well-informed decision.
From there on the rest will be dependant on the performance of several markets in tandem and there will be external occurrences that will impact the stock trade, making oneself familiar with is important.
It usually helps to start out by getting some kind of advice from a financial adviser and gradually when investors feel that they have attained a proficiency level they could go it alone, which means there is a cost earmarked to becoming successful online traders.
Otherwise investing will become like gambling and will lose its dazzle that it is a technically analyzed and guided method of making money online.
Read also: Extended Hours Trading: Is it Worth it?