WHAT IS THE STOCK MARKET 5


One way of making money online is the stock market. So, if you are asking what is the stock market, benefits and risks then you are in the right place.

Let`s say you have some money. If you keep your money under the bed it will lose value over time. You need to put it to work. So, what can you do? You can put it into a normal bank account, but that is not very different from keeping your money under the bed as it won’t have much revenue.

You can buy things in order to sell them later at a higher price. This is called investment. There are a lot of things in which you can invest, like Real State (buying houses or properties) or buying a part or “share” of a company.

Stock Market

STOCK MARKET

When you invest in a company you become one of the owners of that company, so when that company grows and makes more money it also raises the value of your “shares” that you bought, so if you sell them you will make a profit. If the company, on the contrary, loses money, then you will also lose money.

The stock market is the conjunction of buyers and sellers that make transactions over companies, buying or selling stocks or shares. You usually do this through a person who is called “broker”, which is responsible for receiving your money and buy the stocks from the companies you specified and for every transaction you make the broker will earn a commission.

There are a lot of websites that offer online platforms in which you can do transactions of stocks. These websites are the “brokers”.

First of all, if you want to make money online through the stock market you will need to have money to invest. The more money you invest the bigger your revenue can be. It`s never wise to put all of your money in a single company. The best practices suggest that you have to invest in several companies. This is called your investment portfolio.

Broker

BROKER

Let´s say you are ready to participate in the stock market. What do you have to do first? Choose your broker. As I said there are a lot of options out there, many legit and others not so much, so how can I know which can be a scam and which don`t? All legal brokers must be regulated by FINRA (FINANCIAL INDUSTRY REGULATORY AUTHORITY). If a broker is not regulated, then if you have a problem you won`t be able to claim anything.  This can be the case of overseas brokers that promises high revenue in a short period of time and you lose all your money instead. You can check if the broker that you chose is regulated by FINRA here https://brokercheck.finra.org/

Ok, now you have chosen a broker and have already signed with it, now it`s time to start making transactions and make revenue, right? Well, WRONG. This is a common mistake of new investors, to start making operations without really understand how the stock market works.

Imagine that you are the owner of a company, then you have to know how your company makes money, how you can expand, how you can make more money with it. It`s the same for you. You need to understand when to buy stocks and when to sell them. Also, investment revenue comes after a certain time for most cases. You can`t expect a company you invested in to make an explosion grow in only a few days.  It takes months or even years for a company to evolve bigger.

This is why you must learn and practice first. Usually, brokers online offer a free account with virtual money and you can make operations with real data from the companies and you can see how to make proper operations, how to win money and how you can also lose it. Practice as much as you can and when you finally feel like you can work with real money do it.

Stocks

STOCKS

Ok, now you understand how the stock market works, so now you have to choose in which companies you are going to invest. The better knowledge you have of a company organization and status the better, remember, you will be one of the owners of that company.  Don’t be afraid of Financial Reports. Companies are required to make this reports by the Securities and Exchange Commission. You don’t have to be an accountant to understand the basics of a financial report. There are a few things you should look in these reports:(1)

There are 3 reports that companies must deliver in their financial statements, balance sheet, income statement and cash flows.

The balance report:  In any company, there are two major indicators, the company assets, and the company liabilities.

The assets are the liquid money that the company has, investments, inventories, properties, equipment and everything the company can turn into money.

The liabilities are the company’s debts.

The current ratio is the division between the assets and the liabilities. The higher the better. Usually, investors look for a 2:1 ratio, meaning the company has twice the money than debts. Usually, all this data comes with the historical data as well, so you can compare how the company has been performing over the years and if you compare this data with similar companies you can have a very good insight on how this company will perform.

Balance Sheet

BALANCE SHEET

Another important data is the net current assets per share. You can obtain this data by subtracting the liabilities from the assets and divide the result by the number of shares outstanding. If you find a company that has a share value 33% or cheaper than its net current assets per share, then you may be looking to a very good investment opportunity. (1)

The income statement or profit and loss statement give information about revenue and the expenses in a period of time. This shows if a company made a profit or lost money over a period of time. (2)

The cash flow statement is a report in which you can see how the money moves in and out of the company, showing how liquidity it is. (3)

 

There are a lot of stock markets that you can participate.  They are categorized mostly by their country, being the USA stock market the biggest. (4)

In overall, stock markets can be influenced by inflation, economic cycles, interest rates, public finances, politics, taxes and natural disasters of the country in which the stock market resides.

So, as you can see, there is a lot of information that you need to be aware of if you want to keep your money safe.

Resuming the steps before:

You have some money you want to invest.

You have chosen a broker. (If you are having trouble choosing one take a look at this page https://www.stocktrader.com/online-stock-brokers/

You know the basics of how stock markets work and already have practice with virtual money.

You have chosen your portfolio (the companies that you bought shares from) after investigating their financial statements.

Well, now you really are ready to start buying shares. Once you do you must keep an eye on the performance of the companies in which you invested. Also be aware of external factors that can affect the markets.

Making Money

MAKING MONEY

Making money online through stock markets can be a good alternative if you have the money and if you are good you can become rich, but definitely, this is not for everybody. You have to learn a lot and if something goes wrong don’t expect a refund as all your transactions are your responsibility, the broker only provides the platform in which you do the transactions.

I hope this information has been useful to you. If you have any comments, please share.

Your friend

Ruben.

 

 

REFERENCES

1.- http://www.investopedia.com/university/value-investing/value-investing4.asp

2.- https://en.wikipedia.org/wiki/Income_statement

3.- https://en.wikipedia.org/wiki/Cash_flow_statement

4.- https://en.wikipedia.org/wiki/Stock_market

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About Ruben

I was born in Mazatlan, Sinaloa, Mexico. I am an Electronic Engineer and father of three beautiful kids, two males and one female. I like movies, tv series and console games. I am an entrepreneur and blogger and I want to help people to realize their dreams.

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5 thoughts on “WHAT IS THE STOCK MARKET

  • Andrei

    Great post! I really want to start investing in stock market, but I am afraid that I don’t have that kind of cash. What is the minimum amount that you consider as decent in order to begin with? Can you tell me other alternatives in order to earn the minimum amount? Thank you very much!

    • Ruben Post author

      You don`t need much money to start. 500 hundred is enough, but as I mentioned on the post you should start with virtual money so you can learn how to make transactions without losing money.

  • Craig Rutkowske

    How long do you recommend using virtual money before venturing into real money?

    Would you recommend using a budget of virtual money similar the one I would have with my real investment dollars, or to just use whatever the maximum is that my brokerage allows?

    • Ruben Post author

      As long as you feel you have to. Remember, after you start using real money wining or losing money will be your responsibility. And yes you should use an amount similar than the one you will invest.

  • Linda

    Hi, Ruben!
    Great article and very well explained information. Thanks! After reading this post, it seems I understand better, what is stock market and how it works. Maybe some day I will do this.
    Linda