How to make money on stocks for a beginner with no experience
The question of how to make money on stocks is more relevant than ever. It worries investors who are just starting out in this area and want to learn how to properly manage finances and securities.
What are stocks?
Consider what it is. These are equity securities that provide an opportunity to receive a share of the profits of the organization. If the company ceases to exist (will be liquidated, ruined, etc.), the shareholders will receive a share of the property sold at the auction as a percentage of the number of securities.
Previously, they were issued exclusively on paper. This is where the expression "securities" comes from. Now the circulation of the electronic analogue prevails.
Buying shares does not mean instant and guaranteed profit. But it allows you to use different ways of investing and, accordingly, earning. So, how to make money on stocks? By purchasing securities, you can earn in several ways. If the company develops, then the owner of the shares will receive part of the income. You can wait a while and sell the paper, but more expensive than you bought (if by that time the price has risen). Skillful traders know how to make good money on the stock exchange, despite the fall in the value of the company’s shares. Mastery comes with experience. To get it, you need not be afraid to take risks and start working now.
Important! The investor buys and sells with the help of an intermediary (broker). It allows the client to work on stock exchanges. Various types of securities flock here.
Mere mortals are not allowed to enter the markets. Therefore, a broker is a prerequisite if you decide to earn in this way. The main difference between modern securities markets is the conduct of trading in electronic form. This makes it possible for anyone to use the services of a broker and enter the exchange for the purpose of selling or buying from anywhere in the world. The main players are private investors, banking structures, brokers, funds, and so on.
What does a broker do?
The law provides for manipulations on the stock exchange through a broker. There are brokerage companies where you can find an assistant. Some banks provide brokerage services. Confirmation of the right to this type of activity is the corresponding license. But the interaction between the client and the intermediary occurs in different ways:
- Self sale. The investor registers with a broker and opens an account. After that, he independently performs manipulations with securities. Thus, the freedom of decision-making in the management of funds is preserved;
- Trust management. If this scheme of interaction is chosen, then the professional with whom the agreement is concluded is engaged in transactions. The investor will receive a profit, pays a percentage of it to the broker. It is not necessary to delve into the essence of the process.
Some brokerage firms provide advisory services. If you need to know how to make money on stocks, get other answers to questions, then this option is best suited.
How to choose a broker?
It is necessary to take responsibility for the process of choosing a specialist who will manage securities. It depends on the level of income. Consider where to start looking:
- First of all, make sure the trustworthiness of the chosen company and the specialist directly. To do this, you should visit the official website of the Central Bank. There is a list of companies that have been issued a license to conduct brokerage activities. If the selected organization appears in the list, then continue cooperation;
- When considering foreign brokers, remember that it is not forbidden to use their services, but the activity is outside the legal sphere of our state. Thus, the investor is not protected by law in case of force majeure situations.
- Before you make money on the stock exchange correctly, you need to take a closer look at the economic situation and analyze the situation. Brokerage agencies offer different rates. They differ in the range of services and cost. Choosing the right tariff is half the success.
Be sure to check for permits. If the registration is violated, then the work of the broker is not legal. This is fraught with financial losses. In case of revocation of the license from the broker with whom the investor cooperates. the securities are retained and transferred to another agency.
Consider the algorithm of actions:
- A novice investor chooses a reliable and experienced broker. After that, it passes registration, teaches a virtual account and deposits a specified amount of fiat money into it.
- Now you need to download and install the program to work on the exchange.
- The investor finds and sends to the intermediary an application for the purchase or sale of shares.
- The broker draws up and sends the received application to the exchange resource.
- There is a purchase or sale. Now the user has become the owner of shares or sold and received money.
Shares in an envelope are not sent. They are exclusively in electronic format in the depository. This is the name of the organization that is engaged in the accounting and storage of data of owners of securities.
How do stocks generate income?
Any undertaking for development needs money. For this reason, companies turn to investors for help. As a result, the company receives money for which it develops and grows. And the investor receives a part and an agreed percentage of profit (dividends). The share of the company and profits are reflected in the shares. The owner has the right to sell securities to third parties and receive remuneration for them.
The essence of obtaining income on securities:
- It is necessary to determine the goal for the correct choice of the trading mechanism. After the goals are determined, the amount and the time period for receiving are calculated.
- Studying information about stocks, companies, prices, profitability of an enterprise, etc.
- Clarification of possible risks. Before investing money, it is necessary to determine the degree of reliability of the enterprise and the amount of the budget that will be used to purchase shares.
- Conclusion of an agreement with a broker. Investing is considered safe if manipulations with investor funds are protected by the Central Bank. A license issued to an agency or a banking organization is considered a confirmation of the professionalism of specialists.
- Acquisition of shares. Having collected and studied information about the broker and the company, you can proceed to the registration of securities. It is worth buying shares of those companies in whose activities there are no controversial issues. It is not recommended to invest in one enterprise. It would be optimal to divide the budget into two or three areas.
As a shareholder, you need to constantly monitor the situation. Do not forget about the acquisition, in the hope that over the years they will rise sharply in price. There is a high probability that the company will go bankrupt, and the investor will find out about it later than they wanted.
How much do stocks make?
The answer cannot be unambiguous. Much depends on a number of factors. for example, from the invested amount. In addition, trading and investing differ from each other in the mechanism for generating income. Accordingly, the result will also vary.
Trading is a risky way to make money. Shot in the profits of a unit of users. Official information only confirms practical observations. If we talk about investing, then with a competent approach, it is possible to make money on stocks, bypassing risk points.
Suppose the company’s shares grow in price by 12% per year, then after 6 years the investor will double the invested amount.
Important! Despite the growth and reliability, the stock market sometimes falls. There are long periods when the value of one or another freezes in place and does not move in one direction. Or it starts to plummet. Thus, we can conclude that working on the stock exchange does not exclude risks.
Can you profit from falling stocks?
One of the options for working on the stock market involves "shorts", that is, a game for a fall. The point is that the trader sells shares that he did not buy. That is, he expects a decrease in the cost of securities, draws up a loan and sells at the price that is relevant now. After a decrease in value, he buys them back and returns them to the creditor. The difference in cost is income.
Such trading is available to those who have enough funds on the account in order to be able to pay off losses on time. The brokerage agency keeps a close eye on this. If the amount of expenses becomes higher than the deposit, then the deal will have to be closed. Money from the account goes to repayment.
It is worth noting that it is not always possible to receive income from a fall. Anyone who has bought a decline in value is disadvantageous, but seasoned investors tend to buy during a period of decline in value. Earnings on stocks rise when the price rises. Traders often lose money selling stocks. The main reason is untimely fixing of losses.
Another dangerous situation is the moment when a large number of "short" traders close transactions in one period of time. This leads to an immediate rise in prices.
Basic earning strategies
Participants use many different strategies to earn income from shares. They have advantages and disadvantages. Let’s consider some of them:
Transfer of investments to management
This way of earning is similar to a bank deposit. But the difference is that the percentage of income can fluctuate up or down.
The meaning of the strategy is that the intermediary transfers the securities purchased on the market for the management of the selected investment company. She can do whatever she wants with them, aiming to get the maximum income and protect them from losses. A similar model is used for medium-term investments. Because it brings in more money.
In our country, shareholder registers are closed in May. Some investors predict the purchase of securities by this time. This will allow you to quickly receive dividends. Then, waiting for the price to rise, the papers are resold.
Such a strategy is as follows: the participant purchases shares during the year, then sells securities before closing (in May). He does this because of the rise in prices during this period. The rise in value is associated with the payment of dividends.
Long-term investment with blue chips
Blue chips are stocks of popular companies. They provide a steady income. The profitability is small, but the method is in demand as low-risk.
The essence of this method of earning is to acquire at a low cost and then resell them at a high price. Because the stock market does everything possible to promote this.
Because within minutes the level of quotations changes significantly, both in the direction of decreasing the cost and in the direction of increasing. But how to make money on the stock market will be prompted by experienced brokers.
Factors that affect the value of securities:
- the amount of profit that the company receives;
- situation in the stock market;
- the mood of the participants in the game;
- political situation in the country;
To trade, you need to be aware of what the market is based on, how to make money on stocks and constantly monitor the slightest changes. This is not a passive income option. In this case, it will take a lot of time, attention and developed intuition of the trader.
Having bought a share of this or that enterprise (company), the investor receives profit from it. Earnings are made up of the difference in value at the time of purchase and sale. Thus, long-term investments are secured. The process stretches up to ten years. This is one of the safest options for investing money, but at the same time the most unprofitable. This method is acceptable if the investor has a large capital.
This option is also long term. Because it has high reliability and low risk.
Important! Dividends are not a permanent and planned source of income. Because at any time the management of the company has the right to cancel the payment of a share of profits to shareholders.
The advantage of dividends is that they are independent of quotes. Because the participant receives a profit, the amount of which is approved in advance at the meeting. More often than not, dividends are paid once a year. But sometimes every quarter.
The disadvantages of dividends include the fact that each company has its own opinion about the accrual rules. Because there is no single developed policy, and it is unlikely that it will appear ..
An investment portfolio is a set of financial instruments. But the basis is stocks, futures, bonds (in the ratio 50/30/20). Or an investor forms a portfolio of securities of a single type (for example, bonds or stocks), but purchases from different companies.
It is believed that the investment portfolio is a reasonable and safe method of making money on securities. But it has the advantage of being diversified. Because it is unlikely that all companies will collapse at once. It is worth noting that a well-formed portfolio makes it possible to enrich yourself. This is how many now successful traders received their income.
Building a portfolio is costly. Novice players may not financially pull this way of earning. Because the minimum investment will require up to half a million. If the amount is less, then it is not worth starting the portfolio formation process. In addition to wasted time and damaged nerves, the process will end in nothing.
The main drawback of the strategy is obvious – the investor is absolutely dependent on this company. If the paper goes down, then the unlucky investor goes there with it.
The method is suitable for beginners. If a player has 100 thousand in his pocket, then this is the only reasonable way to get acquainted with the work on the stock exchange. But it’s much easier to keep an eye on the price level and the overall situation of a single company than it is to try to keep several directions in mind. Because income is made up of fluctuations in value.
Investments are classified as a profitable option for cash investments. This confirms domestic stock market research. Because last year, for every 100 🪙 invested since the beginning of the year, after 10-12 months, the profit amounted to 120 🪙 But if we take into account the amount of dividends, then the income exceeded 145 🪙. When compared with deposits (growth of a maximum of 6% per year), then the difference is obvious.
But the final amount of earnings is formed under the influence of the structure of the personal investment portfolio and the amount invested. The choice of strategy also has an impact.
Risks and mitigations
The main risk is that the income is unpredictable, inconsistent and not guaranteed. Because only a clairvoyant can predict the rise or fall. But they will not be found among those reading this article.
No matter how the strategists calculate, no matter how experienced the investor is, you can go into the red under force majeure circumstances. But do not despair.
Consider a number of recommendations on how to make money on the exchange for novice investors:
- Answer yourself the question, for what purpose are you in the stock market. Because the goal is half the battle.
- Invest in a familiar business. Then gradually expand the scope of investment. Because only with gradual movement you will absolutely get the result.
- Having chosen one industry for investments, choose companies that have been operating for a long time and have proven themselves to be positive and reliable structures. Because there is nothing worse than being left without money because of scammers.
- As soon as possible, start filling the investment portfolio in the optimal proportion. Thus, the risks from unsuccessful investments are minimized. Because in the worst case, you will only lose part of the money.
- If you are confused in trading, pay attention to trust management. In this case, it will be optimal to reduce the likely risks. Because it is better to entrust matters to an expert than to waste money.
- Work on the stock exchange requires constant professional development. Because the market does not stand still. After all, methods of earning, tools, financial and political conditions are changing. The investor is required to constantly improve skills and increase knowledge in this and related areas.
But to work on the stock exchange, you need to familiarize yourself with the legislation. Since 2015 in our country there are:
- standard brokerage accounts;
- individual investment accounts.
They differ in deductions to the tax authorities. You can not pay tax on the profits received or return 13% of the amount paid within a year from the money coming to IIS. If you look, then the returned 13% refers to a guaranteed and constant (annual) income.
How not to go negative
It is necessary to competently and carefully allocate money (respectively, risks) on securities of various companies and industries. Because without it, you will quickly disappear.
But it is not recommended to purchase a large number of securities of one enterprise at the same time. This, of course, does not apply to those moments when quotes have gone down sharply. But at the same time, it is clear that at any moment it will grow.
Leave promising, but unfamiliar "horses" to others. Work with well-known and time-tested companies.
Only experienced participants can correctly answer this question. But novice investors should learn and try to listen to their inner voice, objectively assessing the current situation around the securities of a particular company. Because that’s the only way they can make a profit.
We list the moments when it is not recommended to throw off shares:
- If you urgently need money. Borrow the missing amount. In addition, do not invest other people’s money, including those taken from the bank. Because there is a chance to be at the bottom, from which it is difficult to swim.
- Tired of waiting for profit. Experienced investors adhere to the chosen strategy. Because that way you are much more likely to earn.
- Shares began to rise rapidly. Often, novice players make an unforgivable mistake when the value of shares rises – they start selling securities. But the growth does not stop at the same time, and the securities are sold – the profit is lost.
Earnings on stocks and securities subtly adjust not only to supply and demand, the profitability of the enterprise, profitability, but also to the political, economic and social situation. Experienced participants pay attention to the little things and quickly respond to changes with action. Because the totality of experience, knowledge, skill makes it possible to earn income.