How to invest in the stock market
What is the stock market
The international stock market has long been the center of the world economy and pricing around the world. Investing in the stock market yields considerable profits, but such activities involve significant risks.
Shares are securities issued by the companies. This is a unique financial instrument that gives its buyers an excellent opportunity to become the owner of a part of the respective company. These securities represent a part of the company in which an investor can invest money and make a profit. The main stock trading is concentrated on specialized exchanges. Stock trading is one of the oldest and most popular types of investment.
For individuals, share investments are really burdening. But they can still become active participants in stock trading via the brokerage companies. In this case, trading is carried out in the form of contracts for difference (CFD). This approach does not provide for the actual ownership of a specific share but allows you to profit from the difference in quotes. Many Forex brokers now provide services for trading CFDs on the shares of the world's largest companies. Trading CFDs on shares allows you to open both long and short positions, that is, to make money both on the rise and fall of the price. The share price reacts, first of all, to the news and deals of a particular company.
So, to have access to transactions on the exchange, you will need a broker. Brokers provide services for buying and selling shares for a small percentage of the transaction. A broker is an intermediary between you and the exchange. It takes responsibility for buying shares and provides you with the necessary equipment and market data.
How the stock market works
The financial market can be divided into three segments: commodity, stock and currency or Forex market.
Commodity and foreign exchange traded markets offer goods/raw materials and currency, while the stock market deals with securities. These can be individual stocks, bonds, checks, futures and forward contracts, as well as options.
All customers of the stock market can be divided into three groups:
- Issuers - companies that issue securities;
- Investors - people who buy securities to earn an income from them;
- Traders – individuals who want to make money by changing the price of a security, and not by direct income from it.
With the advent of the Internet, stock trading became available everywhere, including South Africa.
Avoid investing all the capital in shares of one company. It is important to adhere to the principles of diversification. To do this, simply select a few companies that should ideally work in different industries. In this case, even with a decrease in the value of some shares, losses may pay off by increasing others.
The benefits of trading on the stock market
You have to understand that stock trading has two sides of a medal.
- High profit potential;
- You can start with relatively small amounts.
- High risks.
- Your broker will take a commission from your operations in any case, regardless of whether you win or lose. But to be fair, commissions are usually quite low.
How to invest in the stock market online
Buying and selling stocks from a technical point of view is not difficult for the trader. To do this, you need to register with one of the brokers and open a trading account. After that, you can start trading:
- Find a company that you would like to invest in;
- Find information about the company and its products, study financial statements;
- Select the desired stock market where the shares of the chosen company are traded;
- Select a trading instrument to purchase;
- Proceed to trading.
Stock market instruments
Stock market instruments are used to carry out operations in the stock market.
- Primary stock instruments or first-order stock instruments - stocks, bonds, savings certificates, investment certificates;
- Derivative stock instruments or second-tier stock instruments - options, futures contracts, forward contracts, indices, swaps, and other derivatives.
The value of shares is a value that is in constant change. It can have several meanings:
- Nominal value. In the process of forming the authorized capital, the joint-stock company decides how many shares it will be divided into. At this point, the nominal value is formed, which is the ratio of the size of the authorized capital to the number of shares. When shares were issued in documentary form, their par value was indicated on the front side. Today it is recorded in the register of shareholders. All ordinary shares of the company have the same par value.
- The issue price is set when the share is first placed in open trading. If the first investors receive a security at a value above par, the issuer generates an issue income, i.e. revenue.
- The market value arises when the free circulation of a security on the secondary market begins. This value is formed during the transaction as a balance between supply and demand per share. Actually, this price is set similarly to the price in the commodity market. When selling shares on stock exchanges, the market value is called a quotation.
- The carrying amount is determined at the time of the audit. It is one of the points of the company's liquidity assessment. To calculate the book price of shares, find the ratio of the value of net assets at a certain date to the number of issued shares.
There are many ways to get profit in the stock market, and professionals try to use all of them. They apply technical analysis and fundamental analysis, follow the news, and research companies for investment attractiveness. Some traders resell shares many times a day, while others hold them for a long term as a source of dividends.
How to invest in stocks
There are three main ways to make money on stocks:
- Buy low and sell high.
There are two ways to make money on changing the course. Either buy when the price falls temporarily and after a while, waiting for the rise, sell (long). Or borrow shares from a broker, sell at a high price, and then buy at a lower price (short). The second option assumes some experience and understanding of the market, the first is available to a wide range of players. In the first option, the benefit is less, but the risk is lower, and the process itself does not require special specific knowledge and skills from the holder. In the second case, the ability to take a balanced risk, time, attentiveness and deep immersion in the topic will be required.
- Purchase shares as options, in which the price change is incorporated.
Options and futures are a good method to make money on the difference in the price of shares at different time intervals, but not a full-fledged investment tool that involves long-term planning.
- Form a portfolio of shares from which it will be possible to profit in the form of dividends.
Regardless of the purchase method, the shares will have a virtual look since the usual paper form has already been canceled. When purchasing securities, two entries are made in the depository. One is made by the company that you became a shareholder, the other - by your broker.
How to invest in indices
Buying a share of any one company, even the most successful one, is a big risk. Sooner or later, the company may find itself in crisis. It is much safer to buy many shares at once by diversifying your investments. And the simplest solution is to buy a share of an exchange-traded fund (ETF) that tracks one of the popular stock indices. In other words, it is the equivalent of buying many stocks at once. Such an investment has higher cost effectiveness.
A stock index is a static value that is calculated based on the stock prices of a set of companies (an index funds basket). The most famous indices are Dow Jones and S&P 500. Dow Jones shows the average share price of 30 largest US companies and S&P 500 - 500 largest companies. Over time, the value of the index changes in the same way as the price of a portfolio collected from all the stocks in the basket would change.
The set of stocks that make up the index determines what information about the current state of the market can be obtained from its analysis. Through the use of Indices in trading, traders can diversify their investment portfolio, as well as observe and analyze the state of a particular area of the global economy.
It means you can gather the whole world in your portfolio in order to maximize investment protection. Depending on the period, markets in one region may feel better than in another.
The rapid growth of technologies, as well as their global introduction into the stock exchange can lead to the fact that investments in stocks will be fully and completely carried out automatically by the robot. Human participation in this process will be minimal.
Online stock market investment platform
Your success in trading greatly depends on the choice of broker. When choosing an online broker for stock trading, pay attention to the following criteria:
- The general rating of the company, the total duration of its activities the stock exchange;
- Check if the company has a license for the provided activities;
- Software for trading;
- Informational and analytical support for users;
- Minimum investment size;
- Cost of services;
- Demo account;
- Payment options.
Finding a good broker is about 50% of success since the probability of making a profit without a reliable and professional platform is almost impossible. The level of a trader's earnings largely depends on the choice of a platform. Therefore, it is necessary to pay attention to the functionality and level of convenience of the software, analytical reports offered by the company, as well as the list of resources required to monitor the situation on the exchange.
How to start investing in the stock market
To invest in the shares of individual companies, you will need a certain level of knowledge on how to invest money in the stock market . When investing in stocks, think of them as your own business. Focus on the price of the asset relative to the cash flows it generates and the risk adjustment. Learn how to calculate enterprise value, gross profit margin, and operating margin, and compare them to those of other companies in the same sector or industry. Read the company's balance sheet. Look at asset management funds that own large stakes in a company. Also look out for insiders who buy or sell shares in the company where they work.
All individuals will need to find a brokerage platform for trading stock CDFs which are affordable even for a beginner. If you intend to conduct trading from South Africa, you can pay attention to the IQ Option company that is ideal for both beginners and experienced players.
How to register
The registration process takes place completely remotely. You just need to go to the official site of IQ Option, create an account and provide contact information. The interface of the site is very easy, and you will receive comprehensive information at each stage.
How to open a demo account
Once you complete your registration process, you are free to start training on a demo account. It offers the same trading environment as a real money account. The only difference is that you operate with virtual money and do not have any financial risks. IQ Option offers $ 10,000 for your training activity, this money can be endlessly refunded.
How to open a real account
If you go through education and trained enough on a demo account, you can pass on to real trading. For this, you will need to switch from a free account to a trading account. You just need to replenish your deposit with $10.
How to replenish a deposit
IQ Option offers a wide choice of payment options. You may use a traditional bank transfer, a bank card and a whole list of electronic systems.
Minimum deposit amount
The IQ Option platform is affordable to everyone. You will get access to full-fledged trading with only $10.
How to withdraw money
Money withdrawals are made in the same way as you made a deposit – a bank transfer, a bank card, e-payments. Note, that to get approval for money withdrawal, you need to go through a verification procedure. It is advisable to do it during registration to avoid further delays.
Security of investments in the online stock market
In trading, you must adhere to some rules to minimize the risks:
- Buy stocks in the amount not to risk more than two percent of your account.
- Stop trading until the end of the month, when your account is reduced by 5% of the original amount. This way, you will definitely not lose every penny.
- Carefully compose your investment portfolio, it will help to minimize risks.
- Decide on your style of stock trading strategy: try different approaches and choose the one that suits you best (it will depend both on the available capital and on the skills and free time for the exchange).
- Use stop orders. Consider asset management options where you don't have to be a stock trading guru or look at structured products.
When the owner of the capital decides to start investing in shares, he needs a broker. It is impossible to do without an intermediary on the stock exchange, as individuals are not entitled to directly carry out transactions with securities.
How safe is it to invest in the stock market?
Investing in stocks is associated with risks, especially if you use this instrument for short-term trading. The shares are extremely volatile and can swing considerably. The stock market periodically experiences highs and lows, and even long-term investment does not guarantee you will be left with a profit.
Is it safe to invest in the stock market online?
It is usually safe enough to invest in online share trading. The main risk of stock investing is not that you will buy the wrong shares, but that you will buy that at a wrong price. Therefore, it is strongly advisable to find a reliable broker that will minimize these risks.
How to invest safely in the online stock market?
The key task here is to find a reliable brokerage company that you can trust with your money. Pay attention to IQ Option where your trading activity can start with minimum investments.
Are my investments in the stock market protected?
To be honest, stock market trading and investments are associated with high risks and cannot be insured.
Stock market how to invest?
There are two methods to invest in the stock market. You can conduct buy or sell activity on the online platform or you can purchase shares with the intention to receive dividends.
How safe is it to invest in the stock market?
Trading in securities on the stock exchange is associated with significant risk. Investments can be both profitable and unprofitable. Stock prices are constantly moving, they pass from one owner to another, and their value is rising or falling. To reduce your own risks, it is important to find the company's financial statements and carefully analyze them before making a decision to buy securities.
How much money do you need to start investing in the stock market?
Technically, there is no minimum amount to start this type of investment. You will be conducting your activities via brokerage companies, and each of them has a minimum investment for activating a trading account. If you choose IQ Option, you will be able to start with as low as $10.
How to invest in the stock market with little money?
Some brokers allow you to reach the stock market with really minimum funds. Many of them offer trading accounts with a minimum deposit of $10.
Who can invest?
Anybody can become an owner of shares. But in most cases, you can purchase them directly and will have to do it through a brokerage company.
What are shares?
A share is a security that establishes the right to own a share of the property of the issuing company. Today, their turnover is carried out in an undocumented form. In this case, the registration of ownership is carried out with the help of specialized organizations, which are depositories.
By buying shares, the investor actually becomes the owner of a stake in the company. At the same time, the investor acquires certain rights and responsibilities.
What do you have to do to buy shares?
You will have to select a broker and open a trading account to buy shares.
How are shares bought?
Shares can be bought at stock exchanges. But individuals cannot do it directly. You will need to create a brokerage account on the platform to be able to purchase shares.