Whether you do it for a bit of extra money or for a living, trading on the stock market is not a game for the faint-hearted. To turn a profit on the stock market you need nerves of steel, a good head for business, some cash reserves with which to invest, a firm grasp of the risk and return ratio and just a little bit of luck.
The value of shares in a company which has floated on the stock market fluctuate in value. These fluctuations can occur for a huge range of reasons, but as a trader, the idea is to buy shares as cheaply as possible and then make a profit from them by collecting a dividend or by selling at a higher price than you paid for them.
With a good, high performing company, you may want to keep your shares and then collect the dividend at the end of year. This will either be paid in cash or in additional shares. If the company is doing well, you may very well collect a nice dividend, if not, you will either want to sell up and cut your losses or hold on to them if you think they will recover. A lot of the time, this is common sense and you don’t need to have any formal qualifications in economics or finance in order to do well trading on the stock market. If you spot a business which is new to the market and/or about to float and you think their product or service is going to be the next big thing, then an investment could make you a mint.
If you want to give it a go, you will need to pick yourself a stockbroker. Most high street banks will offer an online share dealing service which is easy to use. The price of stocks and shares fluctuates and you will need to make your decision and act quickly.
As well as trading on the UK markets, you can also trade on some foreign markets. This has many advantages. It gives you an even larger stock market to invest in and due to the time differences, it can extend your trading day and therefore increase your possibility of profit. You should be aware however that there may be other forces affecting this market and you may need to do a little homework before you start investing.
As well as the fluctuations in stock prices, you will need to be aware of fluctuations in foreign exchange rates or forex. You will also need a good understanding of forex rates and the forces which affect and underpin other currencies too. Factors such as political instability in the country will affect stock prices as well as the exchange rate.
If you are interested in trading on the stock market, do some research. Even though risk and profit go hand in hand, you need to have a plan and a firm understanding of that risk. Do some work on forex and get an idea as to what affects those markets. The more informed you are, the more likely you are to turn a nice profit.
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