The answer to this question depends on how you look at it. Stocks are a great long term investment strategy for those people venturing in to long term investment. However, if you think that you can make quick cash from stocks, you are mistaken. The stock market is not a quick money scheme. There are those stocks that are known to get you money eventually but not as fast as some people perceive it. You should know there are risks involved in the stock market and that is the reason why you may not get rich as fast as expected. If you want to make money from stocks then you are advised not to put all your money in one company. Buy stocks from different companies that have a potential for growth.
Making money from the financial market takes a lot of planning. You will have to decide what stocks you want to buy, and the company you want to buy the shares from. You need to research the different companies and the different stocks that are available in the market before you start buying them.
Different Stocks
There are different forms of stocks out there in the market that you need to know about;
Common Stocks
This is the most common stock in the market. The common stock usually offers you the share-holder a voting rights to vote in any shareholders meeting that is held by the company, however this will depend on how many shares you have. Buying this type of stock offers huge returns to you the shareholder, but it is very risky because once the company goes bankrupt you will stand a chance to lose money you invested. The common stocks offers dividends that vary, and they are not guaranteed. These stocks are traded under the company's symbol.
Preferred Stocks And Penny Stocks
The preferred are stocks that represent a degree of ownership, although they do not have any voting right as compared to the common stocks. The stocks however offer great benefits to the investors as you will receive a fixed dividends forever. In an event of liquidation, if you bought preferred stocks, you will be paid first before the common stocks investors. The difference between the common stocks and the preferred stocks is that company may buy the shares at any time. Penny stocks; these stocks are perceived to offer huge returns to the investors. The stocks are also known as cent stocks. These stocks are classified as common stocks for the small public companies. The penny stock usually trade at $5 and below.
The Different Categories Used
Before you can invest your money in the market you have to make a point of knowing the different categories that the companies use to put their stocks.
There is the size category that refers to the market capitalization. The market capitalization is usually the share price times the total number of outstanding shares. The large companies by size are the one that usually capitalizes at tens of billions of dollars. These types of companies have stable stocks and they are referred to as large-cap companies.
There is the style category that is split in to two; growth and value. Growth stocks are usually issued by a company that is expanding at a rate that is above average. To invest in these stocks you need to buy them at an early stage so that you can enjoy the growth. These stocks are risky as they grow fast when the market is good and they slow down when the market goes down. The value stocks on the other hand grow slowly and steady. These stocks trade at a rate that is below average.
The last category is sector. The stocks are categorized in terms of the industry.
How Do You Make Money From Stocks?
Understanding how stocks work may be beneficial to you in the long run. There are two ways that you can use them to make money. You will earn money from your stock when the stock you have bought appreciates in value. The perfect time to sell the stocks is when the stock value begins to appreciate. The value of the stocks is not constant that is the reason why you need to sell and keep the gains of the stocks early.
The other way you will make money from stocks is through dividends. Dividends are simply payouts that the company offers to its shareholders. The dividends usually reflect the company's earnings and are usually calculated from the said earnings. Depending on the type of stock you bought the dividends may or may not be paid. Here is a tip, when you get your dividends, reinvest them by buying other stocks and increase you returns. You may sign up for a dividend investment plan.
Determining The Best Time To Trade
When it comes to the market, timing is everything. You will have to choose the time that you will either buy or sell your stocks if you want to make money from them. There are different strategies that you may use to determine when to trade.
Buy Low And Sell High Strategy
There is the buy low and sell high strategy which is mostly used by the investors. However, it is very hard to know the correct time when the stock is low and when it is high. Even though there is no proven method of determining the correct trading time, you may choose to use the supply and demand concept to determine when to trade. The supply and demand concept dictates that when the demand of a stock is high the supply is high and the other way around.
Market Timing And Buy And Hold Strategy
The other strategy is the market timing which involves predicting the how the stocks will trade in the future using the fundamentals or technical analysis. This strategy is very risky as there are other unpredictable factors that may affect the value of the stock. The buy and hold is another strategy that is used by most investors. This strategy focuses on buying of the stocks not necessarily when they are low and holding on to them until the opportune time to sell them. People who use this strategy to make money usually get high returns as opposed to the market timing.
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