3 Investors Make Money on Stocks

If you are investing in a relatively new stock, you may not really realize all the opportunities to you. Investors can earn three different ways in the stock market and can gain leverage to boost profits.

The big profit of the stock is usually through price appreciation. In other words, you buy a stock and then sell a higher price than you pay. Some investors hold stocks for years; some traders may hold stocks for only a few minutes. In order to increase profits, some investors buy stocks.

When you buy on margin, you borrow your interest from your broker. What are the advantages? Let's say you have a $ 10,000 investment and you really think the stock has the potential for big price increases. You buy on the margin … $ 20,000 worth. It doubles the price you sell. Instead of double for $ 10,000, you earn $ 20,000 and only invest $ 10,000 for yourself.

. They use financial leverage (other people's money) to increase your profits. On the other hand, losses are also magnified, and if your stock falls too much, your broker will give you a margin. He will ask you to take more money, or he will sell your position. After all, they lend you $ 10,000, and your investment does not look right at the moment.

The second way for investors to make money on stocks is through dividends. Some stocks have a dividend yield of more than 5% and some dividends are scarcely available. If you pay a dividend, you will be paid based on the number of shares you own (credit your account, for example).

Third, you can make money by selling short positions, shorting stocks, or by taking short positions in other ways. When the stock market fell, speculators how to become rich. We will keep this simple because you should not do this unless you know what you are doing.

When you go, you try to buy low and sell high … but in reverse order. First you sell, then you want to buy at a lower price. For example, XYZ sells for $ 50 per share, and you want to bet that its price will fall. You sell it for a short $ 50. The stock fell to $ 30, and you covered your position at that price. Your profit is $ 20 per share.

When you cover your position in the above example, you are actually buying XYZ stock for $ 30. So you previously sold $ 50 and then paid $ 30 per share for $ 20 in profits.

What really happened? Your broker borrows XYZ stock for you, so you can sell what you do not really own. When you later buy your stock (cover), he returns the shares to the owner. Do not worry about logistics; brokers take care of it for you.