Investing in stocks is one of the most profitable investment methods, but first, you have to give up all the misinformation you heard about investing in stocks in movies and series, which made investing in stocks either a disastrous decision that causes money to be lost irreversibly, or to achieve extreme wealth in Several months.
In fact, investing in stocks or the stock market is like any other investment method; Profiting in it depends largely on your understanding of it and the ways you deal with it.
In this article, we will show you all the information you need to know about investing in stocks, and how to get started.
What is stock investing?
We can define shares as a share or stake in the company that owns the share. Investing in or buying shares gives buyers a stake in these companies in an amount equal to the size of the share in relation to the company's financial value.
For example, if the company's financial value is $1,000, and this company offered ten shares, then your purchase of only one share means that you own 10% of this company. Of course, the numbers on the ground vary greatly, but the concept is the same.
The process by which a company's shares are offered to the public is called an initial public offering. In this process, companies offer their shares to the public for the first time on the stock exchange (the stock market). This process aims to increase the companies' capital, which helps them grow.
After the public offering, the shares move to a secondary market. In this market, shares are sold and traded among investors again. The difference in the secondary market is that the share price changes according to supply and demand.
Investing in shares means buying a share or a group of shares for one or several specific purposes that we will explain later, but in the end, it is a process whose goal is to achieve profits through the difference between the share purchase price and its selling price, or through the distribution of profits.
What you need to do before you start investing in stocks
1. Determine your equity investment budget
No investor in any field starts investing his money in some way without specifying the amount of this investment, you should not use all your money in your investment, no matter how much you trust or experience it.
Any investment is subject to lose, and therefore determining a specific amount for this investment limits the loss to this amount. Determining the amount also helps you measure the interest rate of this method of investment for you, and the amount of profits achieved from it.
Determine the amount you will use in investing in stocks to be outside of your basic needs and your savings.
2. Determine how much you can bear the loss
The risk ratios of investing in stocks differ according to the types of stocks in general. To better understand the risk ratio among stocks, let's list the most important types of stocks, which are:
- Large equity shares.
- Small company stocks.
- Strong growth stocks (also called aggressive growth).
- Value investing stocks.
Investing in the shares of large companies is less risky, especially in difficult economic conditions, these companies can withstand economic crises more efficiently than small companies.
This is reflected in the potential losses from investing in the stocks of these companies, which are rarely as large as the losses of small-cap stocks.
Strong growth stocks aim to achieve rapid growth of companies while providing high rates of profits to investors, yet these stocks have a higher risk profile than value stocks.
Value investment stocks are usually sold at a lower price in the hope of making profits in the future. Think of this type of stock as a long-term investment.
As I noticed that each type of stock has a different potential for profitability and a certain level of risk, you need to determine your tolerance for loss (and how much in cash if possible) so you can identify the right type of stock for you.
3. Determine your goal for investing in stocks
An investment, in general, may aim for one or more of the following purposes:
- Maintaining the value of the amounts saved.
- Increase sources of income.
- Increase the value of savings in the short term.
- Increase the value of long-term savings.
- A specific goal such as buying a specific property or even covering the costs of a particular trip.
Investing in stocks is able to achieve any of the previous goals, but you must first determine this goal. As we explained in the previous section on the types of shares; There are stocks that offer high percentages of profits and others that are low.
In contrast to the difference in the percentage of risk in each type of stock, the time factor for making profits varies from one type to another. Investing in strong growth stocks for example, you can make profits faster than investing in value stocks.
You should also review your goal for this investment or update it every period according to your needs and global economic conditions. This goal is what will guide you to the most appropriate type of stock to invest in and to achieve your investment goals through it.
What you should pay attention to when setting a goal is that the value of money is constantly changing, for example, if your goal is to achieve profits estimated at $100 during a certain period of time, you will need to update this goal (often to increase it) every period based on inflation rates and the value of the currency.
4. You must decide your investment style
Depending on your goal, you will be able to easily determine the investment method that best suits you in the field of investing in stocks.
Long-term goals such as making profits that you can benefit from after you reach a certain age. Here, it may suit you to choose to invest in stocks that are growing slowly but steadily. This goal also entails buying stocks and then keeping them for a long period of time without selling them.
On the contrary, when you want to make profits within a short period of time such as a few years in order to buy a specific asset or real estate, in this case, you may have to invest in stocks that bring you a relatively fast return, such as strong growth stocks.
In a simplified way, the method includes the nature of your purchase of shares… Will you buy shares once and then sell them after a period of time, or will you continue to buy and sell shares periodically according to their prices, supply, and demand?
The most important steps for investing in stocks
1. Opening an account in a stockbroking company
As an individual who would like to invest in stocks, you do not have the right to buy and sell shares directly in the stock market. This makes the idea of investing in the stock market through stockbroking companies, also called brokerage companies.
These companies have the right to engage in brokerage activity in securities on the stock exchange. This right stems from obtaining a license from the Financial Supervisory Authority or its representative in the country in which they wish to invest in shares.
Stockbrokers carry out the purchase and sale of shares on behalf of the investor in exchange for a set commission.
Other than executing sales, these companies offer financial advice and advice to their registered investors, these investments aim to help investors make the best possible stock investment decisions.
Registering with stockbroking companies (coding) is similar to opening a bank account, if not easier. Usually, you will not need more than a copy of your national ID card and a utility receipt to prove housing (electricity - gas - water).
Coding from a code symbolizes having a unique code or code for each registered investor through which the company can deal with his shares. The fees for the coding or registration process are often simple, and some brokerage firms offer them to their clients for free.
2. Add credit to buy stocks
The previous step resulted in the creation of an account and, by extension, a private portfolio through which shares could be purchased. In order for a stockbroker to buy shares on your behalf, you must deposit a certain amount into this portfolio.
Usually, brokerage companies rely on bank transfers in order to add the amount to your wallet with them. You can also contact the brokerage company that you intend to deal with to see if they provide other ways to add amounts to your wallet.
You will need the bank transfer data for the account of the brokerage company that you deal with to transfer your investment amount to it. After the transfer, the company will add the transferred amount to your wallet.
Usually, brokerage firms specify the minimum amount that you can deposit into your portfolio to invest in shares. This amount changes from one company to another and from one country to another. Of course, it is preferable to communicate with the company that you intend to deal with to know it before creating an account with it.
3. Entering the company's website and using it to buy shares
When you register and deposit a sum of money in your wallet, the company creates an account for you on its website, through which you can view stocks and their indices and select the stocks that you will invest in and buy.
When you select the shares that you want to buy through your account on the company's website, the latter will buy them on your behalf at the stock exchange.
In other words, through the account, you buy or sell shares in a fictitious form, but the actual purchase, which is based on your decisions on your account on the site, is done by the company itself on your behalf within the stock market.
Note: The responsibility of the company here is to implement your orders in the stock market, but you are the one who handles the operations of managing your account from buying and selling, and you are the one who bears the results, and the company only implements your instructions in the stock market.
4. Follow up with financial advisors and experts and check stock market news constantly
This may be an optional step, especially for people who intend to invest in stocks on a long-term basis, however, even if you intend to buy stocks and hold them for a long time, it will benefit you to see the latest news from time to time.
But if you intend to invest in stocks periodically and buy and sell them whenever you find an opportunity to make profits, do not forget this step. Always try to be aware of the latest developments in the stock market in general and the stocks in which you invest in particular.
This review should be commensurate with the size of your investment. Of course, some stockbroking companies offer distinguished advisory services according to your account registered with them and the amount you have invested through them. If this service is available to you, take advantage of it immediately.
If you cannot use financial advisors, you can view the news of the stock exchange on a daily basis, as well as review local or international economic content sites and even economic YouTube channels, which will help you greatly in becoming familiar with the developments of the stock exchange.
Don't let the pursuit of knowledge get you worried and deal with the stock market news calmly so that you can make the best decisions that suit the size of your investment.
Among the most popular questions about investing in stocks
1. What is a stock exchange (or stock market)?
The stock market simply expresses a market for exchange, and although it is associated in the minds of some with stock market, there are other types of it.
The lesser known types of the stock exchange are:
- Currency exchange.
- Cryptocurrency exchange.
- Gold Exchange.
- Petroleum Exchange.
The stock exchange, it is a market in which companies offer their securities. These securities may include:
- shares.
- bonds.
Unlike other types of markets, this market does not offer goods but can be likened to an arena for exchanging financial information. The stock market in each country is managed by its government independently of the policy of the country itself and is generally governed by the policy of supply and demand.
2. What is the difference between stocks and bonds?
Shares are a share of the company, and the investor’s ownership of even one share means that he owns a share of the company’s value. This is good, but in the event of the company’s liquidation, the shareholder may not get the money with which he bought the share.
As for the bond, it is considered a debt to the issuing company, and the latter is considered a debt to the bondholder. The company issuing the bond is obligated to pay it in full to the bond owner in addition to its interest.
A bond can be viewed as a long-term loan that you give to companies or governments that are obligated to pay it at a specific time. Bonds can be predicted in value, unlike stocks, which are mostly subject to supply and demand.
3. What is stock speculation?
Stock speculation is the buying or selling of shares based on their price fluctuations with the aim of making a profit on the difference between the purchase amount and the amount sold.
Speculation in stocks depends most of the time on expectations that may not always be correct, which puts this method of trading stocks at the top of the investment risk ladder in this area, because the investor may have to sell his shares for less than the amount he bought them with.
However, some people prefer to follow this method of investing because (if expectations are correct) it can achieve high profits compared to trading stocks in the normal way.
4. How is the profit made from investing in stocks?
Profits from investing in stocks are made in two ways:
- Capital gains are made by selling shares at a price greater than the price at which they were purchased.
- Dividend distribution This is done by companies distributing part of their profits every period to their shareholders.
We can consider capital gains as the main way to profit from investing in stocks, and most stock investors buy shares and then sell them after a period when the demand for these shares is high, which raises their selling price and brings them profits.
As for profit through dividend distribution, it is considered an excellent way to profit from investing in stocks, but it is sometimes subject to corporate policies, and therefore may not happen periodically.
Conclusion
We have prepared this article to serve as a guide that you can use as a guide in the field of investing in stocks, this field is not as complicated as some try to draw, but it needs an appropriate amount of research and knowledge to be able to enter it and clearly understand the mechanisms of work within it.
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