Anyone looking for an easy way to bring in some extra money should look into investing in stocks and bonds. History has shown stocks are very profitable when investing for the long term. Knowing when to buy and when to sell is the key to success as shown by the number of people on the Forbes 400 list who got there by investing wisely. Before you go to invest your hard earned money though, you need to learn as much as you can about stock trading. Doing so increases your chances of making money.
If you look into stock trading for dummies, you’ll find that the first topic covered is the definition of a stock. Many people don’t fully understand what a stock is. A stock share represents a piece of a business and entitles the owner to a proportional share of any profits that are earned. The owner also gets a share of any losses too. You aren’t actually involved in the running of the business though. All shareholders elect a Board of Directors and these directors are responsible for watching over the company for the shareholders. The Board of Directors decides what to do with any profits earned.
The Board of Directors has a number of options. The company may choose to send you a cash dividend. This dividend may be for the entire profit or only a portion of it. You then do what you would like to with this money. Some choose to spend it, others buy more shares of the company sharing the profit and still others choose to purchase shares in different companies.
The board may opt to repurchase shares of the company that are currently on the open market. Once these shares have been purchased, the stocks are destroyed. This choice can lead to investors becoming very rich in the long run.
The funds may be reinvested for future growth. The company uses this money to build new stores, more factories or anything they feel would benefit the company. Some choose to hire more employees while other prefer to increase advertising.
The final option the board may choose is to strengthen the company’s balance sheet. Many use this option to pay down debt they have. Others choose to use the profits to build up their liquid assets. Some companies, such as Berkshire Hathaway, never pay out dividends. U.S. Bancorp, in contrast, has pledged to return 80% of its capital to the shareholders. They do this through stock buy backs and dividends.
Investors build wealth in one of two ways. They may do so when the share increases in price. The other way wealth is built is through dividends. In most cases, wealth is built by holding stocks for the long term rather than selling when a market bubble occurs.
Stock trading strategies play a role in this also. The best online stock trading for beginners sites recommend those new to trading make use of a simple strategy. As the investor gains confidence, he or she can branch out and begin using more complex strategies. The buying and selling of stocks, as with anything else, requires the investor build a skill set. Over time, as his or her skills advance, the investor can take on more in terms of directing his or her investments.
Now that you understand stock trading 101, you need to find a trading site. With a wide range of companies offering their services online, this won’t be difficult to do. Choose a brokerage that handles everything for you or invest your own money. It’s all a matter of what you are comfortable with.
Once you have selected a brokerage, you’ll need to add funds to the account. The process for doing so varies from brokerage to brokerage so be sure to read the instructions carefully. Most will allow you to use a check, cashier’s check or bank transfer to deposit money into the account.
Begin researching stocks to see which you might be interested in buying. Look at both short-term and long-term trends to get an accurate picture of each stock. Some choose to go with stocks that appear to be safe, but take longer to earn profit. Others prefer to be very aggressive in terms of their stock purchases as the chance of a big payoff is higher. There is more risk involved with this type of investing. Each investor must decide what he or she is comfortable with.
Once one or more stocks have been selected, a buy order must be placed. This type of order can be set so purchases are only made when the stock falls below a specified price. When this occurs, the trading website does the work for the investor.
In addition, you will need to set sell orders. As with buy orders, you tell the system when to sell stocks you own based on a specific price point you have set. You don’t have to watch your stocks continuously as the buy and sell orders you establish do the work for you.
A fee will be charged for each trade executed. If you buy, you pay a fee. If you sell, you pay a fee. Make sure you set the price points for your buy and sell orders at a level that will allow you to make a profit while offsetting these fees.
If you have been hesitant to test the waters in the stock market, don’t be. There is a great deal of information available for new investors to make use of. If you carefully read the materials and act cautiously when first investing, you can build the skills you need to be successful in this endeavor. When you do so, the returns will be of great benefit to you, your family and future generations.