To buy and sell shares has never been easier. However before the days of the internet, if you wanted to invest in the stock market, you would need to find a stock broker who would buy and sell shares on your behalf.
This is now a thing of the past, as you can now buy and sell stocks online with as little as £10 without needing a stockbroker.
With internet access and a little capital, anybody can make good money from trading online; however, it is very easy to lose money as well. While this is a fact, it doesn’t mean that stock market trading is a gamble; it only means that you need to know what you are doing and have a sound strategy.
What do we mean buy and sell shares?
Buying a share means buying part of a company’s stock that has been put up for sale. When you buy stock from a company, you become one of its shareholders. That means, you’re now one of the owners of the company, so you’re entitled to vote in any of its annual meetings.
Being a shareholder also entitles you to taking part in sharing the company’s profits. This is called dividends, and is being paid to shareholders twice or four times yearly. Also, the value of your stocks increases if the share prices rises.
Why do companies sell shares?
When a company wants to expand their operations, they may need additional finances to fund the expansion. In such cases, they may either choose to borrow money or sell shares to raise the money they need. Selling shares is always the best option because by so doing, they won’t run into debts.
Where are shares traded?
Shares are traded on several platforms all over the world. Some of them include FTSE 100 which consists of the top 100 largest companies in the UK, and S&P500 which keeps track of the fortunes the most successful 500 companies in the United States.
You can also buy shares from smaller companies in the UK using FTSE 250 indices or that of the alternative investment market (AIM).
How do you buy and sell shares
To buy and sell shares, you first need to register online and set up an account with a company such as Etoro.
When this is done, you can start to buy and sell shares within minutes. However, before delving into this, it is important to do a thorough research and know the dynamics of the market.
You could read our article about making money as an Etoro copy trader.
Most people prefer to use an online broker because you can practice with dummy money before you commit with real money.
Before you choose which online stockbroker to deal with, you need to check their rates first. Some of them charge a flat rate amount of maybe £10 per trade, while others charge 1% of any trade.
This 1% charge may be best option for those trading with less than £1,000, but it would be costly for those with higher amounts.
You can start by investing your annual £15,000 ISA allowance, and reap the benefits without being charged any tax.
How much can I make?
Many people get involved in the stock market hoping to make some quick cash because they heard about somebody else making lots of money. Well, sorry to burst you bubble but it doesn’t work that way.
If you start buying and selling every stock you see, hoping to make tons of money in no time, you will end up stacking up tons of transaction charges, and will whittle away your funds in no time.
To succeed in the stock market, you need to be patient. It is best to go for long term investments of at least a year, to shield you from the volatility of short term investments.
The most strategic investors believe in holding their investments for a very long period because they understand that the longer it stays, the better it becomes.
Many newbie investors do not understand the importance of dividends. They do not know that as long as you reinvest your dividends, overtime, it can grow up to about 40% of the amount you make from investing in the stock market.
What are the risks involved in investing in stocks?
Just like other investments, the stock market also comes with its own risks. The most obvious one is when the company’s price share crashes or if the company run into financial crises and liquidates.
Worse still, the stock market may crash, and all the stocks you bought in different companies would collapse at the same time.
This tragedy happened in the autumn of 2008 when FTSE 100 lost almost half of its total value within a few weeks.
Although you can’t prevent this from happening, you can at least minimise the danger of losing all your money by not investing in only one company. Spread your investments across different companies, so that if one fails, you’ll have the others to fall back on.
This doesn’t mean you should invest in three different banks for instance; on the contrary, it is still wrong to spread your investment across a single sector. Instead, invest in leading companies in different sectors such as the oil sector, pharmaceuticals, mining, retail lines, etc.
Also, be weary of small technological startups because the risk involved may be more than the possibilities of making huge profit.
Is it worth it?
Although keeping your money in the bank is less risky than investing in the stock market, you actually stand the chance of making more profit than whatever interest the banks give. In fact, according to a research from Barclays, over an 18-year period, UK equities have 99% chance of outperforming cash.
The stock market may not be the way out if you want to make quick cash, but it is surely the way to slowly grow your investment money for the future.
Read our article about making money as an Etoro copy trader.
If you don’t feel that stock market trading is for you, then why not check out our other money making ideas here.
High & Wise