If you are thinking about investing money to make money fast in 2021, this is the right article for you because this article covers how people make money with stocks and how you can too!
Investing in the stock market can seem like a crazy prospect for a generation of young adults with two cents in their pocket and a $100,000 student loan for a degree that they don’t use. But when it’s done right, you can take that 2 cents turn it into 3 cents, and well, that’s more than you had yesterday, and isn’t that the goal? In all seriousness, the stock market is often perceived as a big scary abyss of money that eats unsuspecting investors alive and is the path to a magnitude of wealth for those that understand it. At the same time, those perceptions can adequately understand the stock market, and succeeding and making money with it is far easier than you might expect.
MAKING MONEY USING STOCKS
To understand the stock market first, we need to understand just what a stock is. A stock, otherwise known as a share, is a financial token or instrument that signifies ownership of a company in some proportion. If Amazon had 1,000 shares and you bought one share, you would own one 1000th of Amazon.
In reality, Amazon and companies alike have millions of shares, but that sums up the point when you own a stock that means that you own a portion of that company, and as the value of that company increases, so does your stock price.
Common vs Preferred Stocks
There are also common and preferred stocks, which refer to the voting rights of a shareholder. Ordinary shares have voting rights, and preferred shares don’t. When you have voting rights, you can vote on board elections, mergers, and other financial decisions. Preferred shares are called that because they get preference when a company pays a dividend, which is a split of a company’s profit with the shareholder.
Why companies sell stocks?
The next thing you might be wondering is why companies will sell stocks, and that answer is simple to give money. Stocks allow a company to raise massive amounts of operating capital with virtually no extra effort or product. The modern stock market often bases the value of the company on its potential earnings down the line.
This means that relatively small companies can earn millions or even billions if investors think that they can succeed in the future. If a company wants to sell their shares, they need a place to do it. Enter the stock market companies list shares by selling them through an initial public offering or IPO on an exchange. This essentially changes the status of a company from a privately held business to a publicly-traded one.
What are IPOs?
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. IPOs can let company founders cash out their stake or just let the company raise money once a company’s stocks are listed on an exchange. The public can trade them; usually, prices will fluctuate based on public opinion.
Still, the more concrete trends and fluctuations are usually dependent upon a company’s earnings and operations; these can be measured by p/e ratios or price to earnings ratios and a variety of other metrics. This is usually worn casual investors get scared, and their eyes start to glaze over but fear not, it’s not as complicated as it sounds. Next, we need to understand how and why a share price fluctuates.
How and why a share price fluctuates in stock market?
The stock market comprises millions of investors and individual traders who all feel different ways about a company. They all make independent choices, and the net of those choices results in the positive or negative stock movement. If more people buy, then the price has to climb. If everyone wants out of a company, then the price falls due to a lack of purchasing demand.
An example might be this, say you post something on Craigslist for $100. After posting, you get 100 emails saying they’ll come to purchase your item all cash right now. Most people at this point might start thinking that they price their item too low and thus raise the price until, in theory, it reaches the most that the one single last buyer will pay for it conversely if you receive no offers. You’ll likely keep dropping the price until someone bites.
This is similar to how the stock market moves except that the price rise and drop aren’t done consciously, preferably by millions of transactions every second. Supply and demand, which brings us to that topic for every stock purchase or sale, has to be a buyer and a seller. If there are more buyers, then the price will go up. If there are more sellers, the price will go down.
Traders often might talk about the bid-ask spread, which means the difference between the bid or what someone is willing to pay to buy a share and the ask or what someone is willing to sell a share for supply and demand is relatively simple to understand at the end of the day. If more people want something, that thing, in this case, a stock, will be more expensive at the start of stock markets. Matching buyers to sellers was done manually on a trading floor. It’s mostly done automatically by trading systems; this allows the market to move much faster and creates the breakneck pace that any casual onlooker notices when watching the stock market.
Now you might be wondering, well, I don’t have time to understand this, and why should I even invest anyway when I can earn 2 to 3 percent just keeping it in a bank on a high side. The answer is pretty simple if you do it right, you can make a lot of money using a typical example that you might have heard. If you bought one thousand dollars of Amazon stock back in 1997, you’d have roughly 1.5 million dollars today. Now that’s a long investment timeline, but I think most people would agree that the purchase would be worth it.
Other companies often provide return rates like 30 to 70 percent each year, which will build you a lot of wealth compared to that two to three percent each year kept in a bank account. In essence, as long as you’re able to make more than 3% in the stock market, you’re doing better with your money than just keeping it in the bank.
How to start investing in stocks?
Get a trading account
The first thing you’ll need is a trading account. You can start one with standard providers like Etrade or other central banking institutions. But you can also use free trading services like Robin Hood. Standard trading services will charge fees for every trade you make. Still, new tech companies like Robin Hood have made everything completely free, which means you can invest all of your money in a company and not worry about paying fees to the brokerage. We have a link below to start a Robin Hood account where you can get a free stock to download that if you’d like.
Choosing the right companies stock to purchase
Once you have an account in any trading service, you have to decide what companies or multiple companies stock to purchase, which is arguably the hard part. You also have to have a certain amount of money stocks range from a few cents to many thousands of dollars. The critical thing about stocks is that you can’t purchase part of one; it’s either all or nothing. If you want to invest in Amazon, you’ll need at least eighteen hundred dollars to get started at the time of recording. But you can buy much cheaper, well-rated companies for a few bucks.
Starting making money
Before you make a purchase, you want to do extensive research to understand what a company does to make money, whether they’re in good financial standings, and see what experts think about a company and whether you should buy it at the end of the day.
You do have to assume some risk, so it’s essential you only invest money you’re capable of surviving without at least for a little while or until a specific stock comes back up if it does fall on harsh times.
In this article, we’ve covered the basics of the stock market, how it works, and ways to get started with it. We didn’t cover much of the technical analysis that evaluates a company, much of the terminology around stock trading, or even ways to trade without money. You’re purchasing stocks with called margin, and that’s okay for the beginning investor. The best way to learn the stock market and get involved is to take a few bucks you’re okay with losing and getting your hands dirty, and investing wisely.