Securities offer an excellent opportunity to invest and have an additional income source. Not only traders, but everyone else can magnify their capital gains this way.
In this article, we are going to touch upon stocks and investing, and explain their basics in plain English without complex economic theory. You will learn how to make money with securities in the comfort of your home.
1. Securities are public companies’ stocks
2. What is a securities market
3. How to make money with securities
4. Speculative trading or portfolio investment: what to choose?
5. How to make a profit with securities
A stock is a security issued by a public company (joint stock company). It has its value and constitutes a part of the total capital of this company.
We shall try to explain this process in a simplified form. Let’s assume that some company wishes to attract capital for its further development. It does not take out a loan from a bank, but decides to take money from investors by promising them a portion of the profit.
The company issues stocks (securities) for a particular amount. If we split this amount by the number of securities, we shall get the stock’s starting price.
To sell these stocks, a company enters the stock exchange typically by running an initial public offering (IPO). The company retains a certain percentage, and sells the remaining ones to investors. In the course of the IPO bidding process, the market price of stocks is being formed. It can be higher or lower than the original price.
The stock is a security which typically implies participation in the company's profits. The company distributes a portion of the profit among the shareholders, and investors receive dividends. That being said, not every company pays the dividends, and so you should factor this in.
Where can one find companies’ stocks and gain access to investing? This is where securities markets or stock exchanges come into play.
The securities market is a place where the stocks of public companies are traded. Most countries generally have the stock market or its trading platform.
E.g. In the United States, there are three most popular stock exchanges in the stock market.
NYSE is one of the world’s largest exchanges. That’s where the shares of most American companies are traded. Amex is the smallest and least popular of the three. The stocks of technology companies are listed on NASDAQ.
EURONEXT is one of the leading exchanges for the Tech sector in Europe. In Russia, it is the Moscow Exchange. As far as Ukraine goes, the securities market is centered on the Ukrainian Exchange.
To make money with stocks, the stock market is the one you need to gain access to!
We have already figured out that the stock is a security that can be accessed through the stock market. Keep on reading to learn how to make money with securities.
Free stock pricing laws apply in the stock market which means that supply and demand affect the stock price formation. In other words, the more people wish to buy this security, the higher its price. And vice versa: if the majority of market players sell stocks, it leads to its price drop.
So, speculation is one of the key strategies for making a profit with securities. Essentially, you can buy a stock, knowing that its price will go up. When its price increases sufficiently, it can be sold. That way you profit from the difference between the buying and selling price. You can hold the asset from five minutes to five months, or even years.
If you purchased Facebook stocks in October 2019 at $175 apiece and sold them in January 2020 at a price of $215 apiece, you could have made $40 per stock.
Thanks to margin trading rules, you can make money by selling stocks. To achieve this, you open a short position on the exchange, and when the price drops, you can take profit, leaving the price difference to yourself.
E.g. Had you sold Apple stocks at $320 apiece this past February when the coronavirus epidemic took over China after having made a forecast about their drop, your profit would have totaled $68 per stock by March 16, 2020.
As previously mentioned, some companies pay dividends to the holders of their stocks. In other words, you basically get your hands on a portion of a company's profits.
This can serve as an excellent income source for those who do not wish to actively trade stocks. If this is the case, you should pick securities that are issued by the companies that pay dividends. Once you’ve purchased them, you can receive regular passive income, even if there is not a large increase in the stock price.
Securities are not just a chance to make money through speculative trading. Using stocks, you can build investment portfolios. To this end, you have to choose several promising companies whose stocks, based on the forecast, will grow in the short run.
Having created a portfolio of such securities and set profit goals, you can start opening trades for a month, quarter or year and track down your capital growth.
When forming an investment portfolio with relevant stocks, you can apply both speculative and dividend approaches. To do this, pick stocks that will be profitable due to changes in their value, as well as through the payment of dividends.
So, we have learned what securities are and which strategies you can use to make money with stocks. Now what? To buy and trade stocks as a private investor, you will need help from brokerage companies that provide access to stock trading, as well as CFDs.
Gerchik & Co brokerage company offers access to CFDs (i.e. Contracts for Difference) on stocks on most popular stocks. To buy and sell securities, you will need a special trading platform that can be installed on your computer or any other device. MetaTrader 4 trading terminal is ideal for CFD trading.
But what to do if you have never traded in the financial markets before and have no idea how to choose securities to invest in? For this, you will need an experienced mentor or quality training. Once you complete it, you will realize how profitable it is to trade in financial markets.