Despite the fact that trading at the stock exchange seems to most people extremely confusing and incomprehensible, almost anyone can start investing in securities. All you need is a little patience and attention because 99% of careless actions will only lead to losses. To avoid them we suggest you read our article where we describe in detail how and in what way you can start investing in securities.
Investing in a nutshell
Without going into details, investing in securities is built on the principle of mutual benefit. A company needs additional finances for its own development, so it issues shares and puts them up for public sale. The buyer, in turn, can buy them, thereby transferring his funds to the company and being entitled to a portion of its profits.
An alternative option is to buy another type of securities – bonds. They differ from stocks in that their repayment is legally guaranteed and has higher priority in case of bankruptcy of the company. At the same time it is impossible to get money for them at any time – the maturity period is fixed. The second disadvantage for the investor is a lower rate of return.
On the whole, both types of investments have their pluses and minuses and each buyer can choose which is closer to him: the potentially higher and faster return of shares or lower risk of bonds. As most beginning traders are much more interested in quick profits, we will dwell on shares.
How to earn on stocks?
There are only 2 ways to earn on stocks:
- Dividends – in this case, the investor’s profit depends on the company’s net profit and the number of shares purchased. Dividend payments are made according to the results of a year, 9, 6 or 3 months. The profits can be refinanced – continue to invest in shares under dividends, thereby increasing each subsequent payout from the company. Many beginning investors do not want to wait so long for income, so they prefer the second way of earning, but history knows of many successful cases of earning exclusively on dividends.
- The exchange rate difference (also known as speculative income) is based on the timely purchase and sale of shares. The basic principle is simple: buy cheaper – sell dearer, but in order to catch the “ideal” moment it is necessary not only to choose the right company but also constantly to follow the market. This way of investing is potentially more profitable, because in a short time can bring impressive profits, but the risk, in this case, is higher.
Which stocks are worth buying?
This question should be considered from different sides, conditionally dividing all shares into 3 groups.
Shares can be cheap and expensive. It’s hard to say exactly which one to invest in. Everything depends not only on the amount of money which you are ready to spend but also on the market situation. Practice shows that you can make a profit in both cases. For instance, you can buy cheap stocks of a young company which will suddenly “shoot up” or, on the contrary, invest in expensive securities of giant enterprises with a stable, though not very fast, dividend payout.
Shares can be:
- Dividend stocks – the cost of buying and selling them is of secondary importance here, they are purchased solely for the sake of stable dividends.
- Growth stocks – the companies to which they belong grow rapidly, but practically do not pay dividends, investing all income into development. This is a classic example of making money by buying and selling on time with income from price differentials.
- Value stocks are potentially expensive stocks in which the market, for whatever reason, is not yet interested. That is, there is a very high probability that their prices will take off, but it is impossible to determine when that moment will come.
Stocks are issued by companies in all countries, and you can invest in almost any of them.
How do I buy and sell stocks?
The most convenient way to enter the stock exchange is through a broker – an intermediary company, which ensures the opening of a special brokerage account and execution of your orders. A natural person cannot start trading on the exchange independently, without intermediaries.
We have already described in detail the process of purchase and sale and brokerage services in the previous material, which we strongly recommend you to read.
How to guarantee the success of an investment in securities?
Unfortunately, nobody can give you a 100% guarantee of safety of invested money, that is why experienced investors never fail to warn: you should not try to earn on the exchange, investing your last money in shares and expecting an early growth of profit. Such an approach is likely to produce an entirely opposite effect. But in order to minimize the risks, we offer you an approximate plan of action, which will help you make your first profitable investments in securities.
- Prepare yourself for the stock exchange. Read books or at least watch video lessons from successful investors. Your first purchases and investments can be made virtually, without investing real money, for which you can open a special demo account with a broker.
- Determine your budget. Experienced traders recommend starting with $200-$500, but in the case of investments in Russian companies, this amount may be less.
- Analyze the market, choose the companies you think are worth investing in.
- Allocate funds. Experienced players never spend all of their money on one company. It is advisable to allocate your budget to 5-10 areas, among which will be dividend and value stocks. This will help you level out unsuccessful investments.
- Choose a broker, open an account and fund it.
- Purchase stocks.
- Follow the news and quotes – you can do this online or in a trading terminal, your broker will offer you.
- Reinvest – be sure to invest part of your profits in expanding your holdings of purchased securities or in new investments.
Working on such a plan, you can become quite a successful investor and, perhaps, in a few years you can boast of impressive capital.