Make Money with Stock Market
It is a misconception that only the rich can become a trader on the stock market. While it is true that you need to put some of your own money in, you do not have to put in thousands of pounds at a time. Becoming an active trader is easier than you think. With practice and patience, anyone can join the many successful stock traders on the global exchange market.
In this article, we will discover what it takes to become a professional trader.
Learn some Terminology
Like any professional field, there is a list of basic terminology that you are expected to know to navigate through the information and company listings. Learning the terminology is a good place to start. Just looking at how a certain company stock is trading on a given day is not a clear indication of how the company is performing. To better understand a company’s performance, we must know the following terminology:
- Dividends – This is the term used for the pay-out of profits to shareholders or stockholders. Dividends are paid when a company reaches a profitability and stability. Shareholders can then either buy more stock with their dividends or take their profits.
- Outstanding shares – This is the total shares of a company. It is used in various calculations such as price to earnings ratio and earning per share.
- Earnings per share (EPS) – This indicates the money that a particular company makes per unit of stock. To perform the calculation, you take the company’s net income and subtract dividends (preferred stock) and divide it by the outstanding shares.
- Price to earnings ratio – This is a ratio used to see how much investors are pay for each dollar of earnings. It is the share price divided by the company’s EPS.
- Market capitalization – With this calculation, share price multiplied by outstanding shares, it can give an idea of how big the company is. It does not show the true value of a business but can be used as a quick reference.
Once you understand the basics, you can take advantage of websites such as CMC Markets to keep up-to-date on the latest trends in the global market.
Choosing companies to invest in
For most investments, the type of stock you will invest into can be split into two categories.
A diverse portfolio will have both types. The first is growth stocks. With this type of investment, a trader will look to buy the stock when it is not valued very highly, selling it when it has gained in share price. Also known as the buy low, sell high strategy, it is a sometimes risky strategy. While some companies go through healthy growth yearly, such as Netflix, other companies can continue with their decline. Research is a key component of investing into growth stocks – the continued expansion of a company should be quantifiable.
The second kind of stock is dividend stocks. Some companies are at a point in their life cycle where there will not be more growth. There may be a steady increase over time but nothing too abrupt. This is what makes them a safer bet – the risk of a company such as McDonald’s going out of business is very small. You will likely make less money than a well-picked growth stock, but it is reliable.
Diversify your investment portfolio
Putting all of your money into just one stock is a recipe for disaster. A portfolio should be diversified in the types of stocks it has in order to ensure overall success. You should look for a balance between high-risk growth stocks and low-risk dividend stocks and bonds.
Spreading your assets means that if one company fails, it does not mean your financial ruin. While some stocks do poorly, others may be doing well, balancing your portfolio. Strategies should be in place to not allow for too much investment in one stock as a percentage of your total portfolio.
What can start out as just an interest in stocks and money markets can turn into a lucrative career for those willing to learn and show persistence. Remember to take every day in the trading world as a learning experience in order to improve your trading skills.