You can earn in stocks as a trader or an investor. Traders make deals on daily basis, constantly buying and selling shares. Investors hold securities for longer periods of time, it may be a month or several years. Long-term investments are less risky, do not require much experience and insight.
How can I make money in stocks?
There are two ways to earn money:
The joint-stock company pays annually dividends to the holders of securities. This is not a fixed interest, as one sees in banks. The amount of dividends depends on the company’s standing and its net profit at year-end.
Net profit is an entity's income minus all the expenses, charges and taxes. The profit is distributed among shareholders and the joint stock company itself, with part of it covering dividends, and the rest being reserved for the development of the company. The percentage that is to be transferred to the investors, is defined in the Articles of Incorporation or at the General Neeting of shareholders. This can be 20% as well as 50%.
Dividends are paid based on performance in the previous year, every 9 months, semiannually or quarterly.
If the dividends on Allianz SE shares are € 7.8 per share, purchasing a portfolio of 100 shares will gain you € 780 in the form of dividends only.
- Earning money on stock price changes
‘Buy cheap, sell high’ - this algorithm is equally applicable to both stocks and any other securities, foreign currency, precious metals.
You can earn both on the value appreciation, and on its decline:
Long - you buy stocks at a low price, sell at high.
Short - you ‘borrow’ shares from a broker, sell at a high price, then buy shares at a low price and return your ‘debt’ in shares.
If you do not count on trading and make long-term investments (e.g., for a twelvemonth), it is a good idea to ‘bet on’ the value appreciation. Short-term transactions require experience and qualifications.
What shares can you make money in?
In fact, any shares will do, only the scheme may differ. Everything depends on the stock prices dynamics and the reliability of the company.
Shares of large companies such as Pfizer, Daimler, Total may slowly rise or sag in value, so they bring not so very large but stable income on a mid-term horizon. Dividends are usually small: market leaders do not need to attract investors by increasing the percentage of profits for shareholders.
Shares of budding companies, as well as of those slouching through a recession, is a more risky purchase. With luck, you can get a thousand-fold profit, but if anything goes wrong, you lose money. A typical example of a successful risky investment is Facebook shares in the first steps of the social media.
What determines the shares value
After the emission shares pass from hand to hand (or are listed at a stock exchange). Investors have the right to set a value that conflicts the nominal price (if this share has such). Gradually the market value is formed. Unlike the nominal, it changes day by day. It is not that difficult to forecast stock quotes and, in doing so, make a profit on buying in and selling securities. You need to know what factors affect the shares value.
The list of factors governing the stock value
The Company’s profit. The higher the profit is, the higher is the potential yield of shares - the dividends. Accordingly, the rate itself is higher.
The Company’s Reputation. The company's shares, that inspire more confidence, tend to be more expensive ones. And, on the contrary, an enterprise with a bad reputation gains fewer investments. Consequently, the stock price rate is also low.
The Company’s profitability / reliability ratio. The higher the insecurity and the greater the fluctuation is, the higher should be the potential income. Investors prefer more reliable investment objects with a small income. Accordingly, the value of such shares is higher.
Industry news, certain market changes.
Economic update of a particular state and its standing.
Global economic update and events.