To many people, the stock market is a mysterious entity that you hear about on the news, it goes up and down and there is a sense of drama and dread attached to the whole affair. In reality, it’s not that mysterious, and if you invest wisely there’s nothing to dread! This brings us to today’s first question, what exactly is a share, and how do I go about buying one? Let’s get started, there is money to be made!
To begin with, a single share is a unit of ownership in a company. When you buy a share or multiple shares in a company, even a very small number, you own a small portion of that business. You will need to involve a third party, your broker, if you decide you want to trade shares, which is how people make money on their share investments.
There are two ways to go about doing that. One is to watch for an increase in share price, which is called capital gain, or capital growth. Quite simply put, you make your money by buying shares when they are at a lower price and selling them when they grow to be worth a higher price. The thing to keep in mind is that shares can also fall in value to a price below the amount you paid for it, resulting in you taking a loss and losing money! Share trading is a game that requires some luck, but if you become skilled at predicting which way the market is going to go, when your shares are liable to rise or fall, then you can make a very tidy profit!
Another way you can make money when you buy shares is to invest in those that pay dividends, a small portion of the company’s profits that goes to its investors, who are called shareholders. Not all companies pay them, but you can choose to invest in the ones that do, and if the company does well, expect some extra money to arrive in your bank! It’s a win-win situation, the company profits from having lots of shareholders purchasing their stocks, and the dividends are fairly small change for them, a tip to those who invested in them, but they can add up and may be worth pursuing!
Some people ask the question “Isn’t my bank’s savings accounts a safer place to keep my money?” Sure it is, but it’s not going to earn you anything near the amount of money you can make off of a successful share trade. Share trading is risky, but if you are careful and weigh those risks, doing market research and avoiding impulse buying and selling, you will make a lot more money than if you had it sitting static in your savings account collecting the paltry pittance of interest they pay. The old saying “Nothing ventured, nothing gained” perfectly describes the situation.
If you are still with us, you may be wondering what your next steps are to begin your share trading adventure. You can start by answering the following questions –
- How much of your money do you want to invest?
- How long do you want to keep that money in the stock market?
- Will you be able to make further investments regularly?
- How do you intend to learn more about investment strategies?
Share trading is a game in which knowledge beforehand can spell the difference between victory and defeat, it is highly recommended that you study up on the subject prior to making any major investments so you have a firm understanding of markets and how volatile they can become! The sooner you can acquire the knowledge you need, the sooner you can make confident investments. It’s critical to have a firm understanding of the economy, including all the contributing factors like government policy, interest rates, and exchange rates, and the effects they can have on a company’s performance.
The next question is, how much money do you need to get started in share trading?
The majority of brokers are going to require that your first trade to be at least $500, which is referred to as the “minimum marketable parcel of shares”. After that, the amount of increments and additional purchases will be up to the individual broker’s discretion. The standard wisdom among experienced traders is to “Use at least $2,000 to start your trading efforts”. If that sounds like a lot of money to be committing, then you might want to wait until you are in a better financial position before you risk it on trading.
It’s important to understand that when you buy and sell shares, you pay a brokerage fee for each individual transaction in addition to the share prices, which means that the less money you invest, the higher the percentage of fees you pay as part of your total investment. What this means to you is if you begin with just a small amount of money, the company you make your investment in will need to perform at a rate a lot higher than the average rate of return if you are going to make enough money to just cover your costs, not to mention turning a profit when you eventually sell those shares.
You have to bear in mind that trading shares is considered to be the riskiest type of investment, so the more money you invest in them, the more of your savings you are exposed to that risk. You must be absolutely comfortable with the chance that you may lose the money that you invest in the share market and end up with empty pockets! We know that sounds pretty dire, and it’s meant to make you think carefully! Now that you have been warned, we can also tell you that if you are cautious with your investments and avoid bad bets the chances are good you will do just fine, and will have the pleasure of watching your money grow.
Trading shares is a fun and exciting way to make a profit if you learn how to play the game well, and the rewards usually outweigh the risks! Happy trading!
