In this article you will find some definitions to understand what actions are and how they work, as well as examples to know how you could make money with this type of investment.
Learn about investing and what is the stock marketIt is very similar to learning to ride a bicycle.
At first it can be intimidating, complicated and even very risky, so it is important to learn the basics, ways to minimize risk and protect yourself.
Just like after practicing for hours, you manage to find balance and confidence on the bike; if you spend enough time studying and practicing, you can start investing.
There will be good and bad days. Nevertheless invest in the stock market it is the fastest way to build wealth.
Would you like to start learning what investing in stocks is all about? Continue reading that we are going to tell you everything you need to get started.
Let’s start with some basics.
What is the stock market.
The stock market is an institution, organization or association, where stocks, bonds, futures and commodities are controlled and exchanged. Both sellers and buyers meet there to exchange these goods.
The stock market is one of the most important components of a free market economy; as it gives companies access to capital in exchange for giving investors a piece of ownership.
Most important stock exchanges in the world:
- New York (New York Stock Exchange)
- nasdaq
- London (London Stock Exchange)
- Tokyo (Tokyo Stock Exchange)
- Shanghai (Shanghai Stock Exchange)
What is an action.
A stock is a title that represents a small part of a company. If you own a share it means that you own a small part of that company. By owning a share; you will own a fraction of that company’s assets and will benefit from its future earnings.
Also read: What is compound interest and why it can make me a millionaire.
What is a broker
The broker is in charge of executing the orders to buy or sell shares submitted by investors. Simply put, brokers are the ones who connect buyers and sellers on the stock market. The purchase and sale of shares must always be carried out through a broker.
Brokers trade on behalf of individuals and companies and charge a flat fee or commission for their services; which is a percentage of the stock’s sale or purchase price.
Today there are a wide variety of brokers on the internet and this is what allows you to invest in shares from anywhere in the world. You can do it even from your phone.
How can I make money investing in stocks?
There are two ways to make money investing in stocks:
- Action Appreciation: It is when a stock increases in value. If you buy a stock for $1 and the price rises to $3, you will be able to sell the stock and you as an investor will have earned $2.
- Dividend: Dividends are periodic payments to company shareholders. They are the way in which the company shares its profits with the partners.
Also read: How to earn money with bitcoin (learn for free with the best)
How the stock market works. (Example)
We will answer this question with the following example:
we have the company Eolo Motors. This company is selling vehicles that work by alternating electric and wind energy and they have been very successful. The directors of Eolo Motors want to expand, but for that they will need a strong investment of capital; that allows them to sell more vehicles and invest in research and development.
How can Eolo Motors do to get the capital? You have two options:
- You could apply for a credit/loan. Which would mean taking on a significant amount of debt.
- I could issue shares. By issuing shares, Eolo Motor would make ownership shares available to the public; allowing investors like you to acquire a small part of your company in exchange for your money.
Suppose that this company needs $1,000,000, so it decides to issue 5,000 shares. This means that the value of the share at the time of the initial public offering or Initial Public Offering (IPO) in English, will be $200.
If you have extra money and you know that your savings account will never give you the returns you need; you may be willing to take a bit of risk to earn higher margins.
Let’s assume that the stock market value remains at $200 after the IPO and that you decided to buy 10 shares. That is, you invested $2000. If Eolo Motors is successful and its products start to sell more and more, the value of the company will increase; and consequently the value of the action will increase.
For the purposes of this example, let’s think that the company doubled, meaning that its total value is no longer $1,000,000 but $2,000,000. So the shares you bought for $200 now have a value of $400.
If you want to turn your investment into profit, you could sell your shares to another investor and you would have $2,000 more than your initial investment. Exactly, you won $2000!
Also read: How to save when my salary is not enough.
The other scenario is that Eolo Motors did not have the performance it was looking for and its value fell by half. In other words, your share will be valued at $100.
Bonds and CDT’s are definitely less risky investments, but with less risk there is less gain. For this reason, more experienced investors create diversified plans and portfolios, allocating money in other types of investments to minimize risk.
This is just an appetizer on the investment topic, but we hope it clears up your doubts a bit and arouses your curiosity.
If you want to learn more about investing in shares, we recommend this course. Click here.
You may have heard of cryptocurrencies. If you are interested in learning about the subject, you can click here to meet the best tutors, with whom you can learn a lot; and free.
And remember that if you are really interested in creating your own business, you can purchase our book “How to create a company while working: Discover how to manage your time, manage your money and motivate yourself while creating a company and working for another” , where you will find all the information you need to found your own company, without having to leave your job.
