10 Effective Tips to Trading Shares Online
We all know that investing your money is the only way to make it grow–like trading shares online! You won’t get anything worthwhile from leaving it in your bank account, so finding new ways to create profit or income is the way to go.
Investing in shares is increasingly common thanks to the proliferation of user-friendly apps on which you can execute your trades. Plus, there are vast quantities of free advice readily available online that will help you make some sensible decisions.
The beauty of financial trading is that you can invest in markets around the world. You can, for example, buy shares in South Africa via the New York Stock Exchange, the world’s largest stock exchange by market capitalization, where there are plenty of opportunities with large, established corporations and emerging companies.
What Are Shares?
When you hear that a company is publicly listed, it means its shares are available to buy and sell by members of the public like you and me. Each share in every company has a price, which fluctuates every day and every minute during trading hours.
The price of a share is down to the pressures of supply and demand – the more people who want to buy, the price goes up, the more who wish to ditch their shares, the price goes down.
If a company has 50 million shares, and each share is worth $3.17, then the current value of that company is $158.5 million. If you hold 500 shares, they are worth a total of $1,585, and you are the proud owner of 1/100,000th of the company!
That may not sound like much, but the benefit of owning these shares is not necessarily in how many you hold. That’s because you can make money in two ways, whether you hold ten shares or 10,000. In this way, it becomes a popular method of making money.
Capital growth
In our example, where your 500 shares are currently worth $1,585, let’s see what happens if the company has two strong years, winning new contracts, building revenues, and profit. During that time, the share price inches up to $4.35 from the original $3.17. Your 500 shares are now worth $2,175, so you have made a $590 profit if you were to sell them.
While you may consider keeping hold of them in the expectation that the price might continue to rise, you should always be aware that the price might also fall, perhaps to below the value at which you purchased the shares, and you could lose money.
Dividend income
A second way to make money from shares is by way of dividends. When a company declares a profit, it can choose to repay the faith shown in it by the shareholders with a dividend payment. The amount will be determined by the board and will be a percentage of those profits. You then take your cut.
For instance, if the total dividend of our example company equates to $0.26 a share, your dividend payment will be $0.26 x 500 (your shareholding) = $130. There are no rules about how often a company can declare a dividend, although most will do so every six months or even quarterly. Regular dividends make a stock more attractive to investors.
How to Buy and Sell
Now that you understand the basics of what a share is and how you can benefit from it, the next question is: How can I do it? Thankfully, there are many choices where you can buy and sell shares online. You need a broker, who is the third party that facilitates all your transactions while displaying real-time price information.
The best brokers, many of which are international and popular all across the globe, offer trading on shares on the New York Stock Exchange, Nasdaq, London Stock Exchange, plus other markets worldwide, including the booming Johannesburg Stock Exchange, and many more. They also offer to trade in the price of commodities like gold and on currencies (called Forex, short for foreign exchange).
Your broker will offer a platform upon which you can see all the share prices in real-time, including charts and analytical tools so that you can make better buying or selling decisions. It will keep a record of your trades and offer up-to-the-minute values on your portfolio (this is the term used for all your current stock holdings).
Simply select the share you wish to buy (or sell) and the number of them, and complete the transaction. It takes seconds, and you can begin to profit immediately from price movements. Of course, you can also begin to lose on paper, which becomes a real loss if and when you come to sell.
Key Tips to Improve Your Results
Nothing beats good, old-fashioned research. Yes, you can pick a company at random because you use its product and service, know about it, and hope for the best. But for improved results, research the company performance.
Read expert advice
Good brokers will have excellent content which offers advice about good companies to invest in. There are also many places online that offer sound free advice. If several of these destinations tip the same share, then it’s even better. And if you already hold a share in a company that analysts expect to dip, be prepared to sell.
Mobile trading
Make sure your broker offers a mobile app. Imagine being out and about and getting a brilliant share tip or hearing one of your holdings has gone into meltdown. Don’t waste a second and execute a trade instantly using the mobile app.
Financial analysis
Most apps offer an array of free analytical tools. For example, you can pull up a chart showing the long-term price movement of a popular share, and draw lines on it, apply indicative measurements, and make a decent forecast about the future direction of the price movement. As you get more experienced, these analytical tools will become a powerful weapon.
Stop loss
Remember to apply a stop loss with your broker. In our example, where the price was $3.17, you might instruct your broker to sell automatically if the price dips below $2.75. You might do this because you are only willing to lose a certain amount of cash on one stock before calling it a day. With no stop loss in place, the price could fall well below this figure before you realize it.
Invest wisely
Never invest more than you can afford. Have an amount set aside for your share trading and use that. You might generate profits by selling shares to increase your trading bankroll or set aside dividends and use those to buy more shares. Never chase losses and try to build a diverse portfolio so all your shares are not in the same sector, meaning you can spread your risk.
Conclusion
Buy and selling shares is not just for those smartly dressed city types in movies like Wolf of Wall Street. Anyone can buy and sell shares, and if you follow good advice, it’s possible to grow your portfolio steadily. In this way, share dealing can become a significant part of planning for your financial future, whether it is for your own retirement or to put towards a child’s education.
Make smart decisions, and the profits will be easier to come by.
