There is a big reason why so many people trade in stocks – you have a belief that you can make money from the investment. Stock trading is an alternative to eg. to have the money in a savings account, and the big draw is that you can get a higher return, that is, to earn more, if you choose to buy shares rather than having the money in savings account. Another saving method is to save in mutual funds, or to save in both equities and mutual funds. It should be remembered that there are various major risks associated with the different types of savings, where stock trading has a high risk compared to the savings account.
Are there any risks of stock trading?
Stock trading is associated with relatively high risk and you can lose the money you have invested. The higher risk means that your return can be much higher than if you were to invest in a savings alternative with a lower risk, but at the same time, however, the risk of losing their investment increases.
Why do shares rise in value?
There can be many different reasons why shares rise in value – basically anything that can have an impact on the company’s future profits. In the long term, the main reason why shares rise in value is that a share is an ownership interest of a company, and that you as a partner in a company have the right to share the company’s profits. All companies traded on a stock exchange aim to make a profit and make money. When companies make a profit and make money, their value also increases, and then you as a shareholder make money. However, it is not only today’s profits that make up, but also the expectations of a company’s future profits. As mentioned, you as a shareholder can make money by increasing the value of the company. But you can also make money if the company chooses to distribute all or part of the profits to its shareholders through dividends. This means that they pay out money to their shareholders. From the shorter time perspective, the courses are affected by more temporary reasons. For example, there may be prevailing general trends up or down, interim results, rumors that are true or false, temporary changes in interest rates, temporary fluctuations in the number of people who want to buy or sell shares, news and much more. In new hot industries, there is also a buzz of buying, which can create short-term bubbles.
How can you make money on shares?
1. Sell shares with profit
If your shares rise in value, you can sell them at a higher price than what you bought them for. An increase in the share price occurs e.g. When the environment or market believes in a positive development for the company, that is, the company will continue to perform well and that there is an expectation of higher profits.
2. Take part in dividends
If the company you own shares yesterday with a profit, you can receive a dividend, which is part of the company’s profit. How much of the profit you get to share depends on two things; partly how many shares you have that qualify for a dividend, and partly how much of the profit is to be distributed to the shareholders, which is decided at the general meeting. The dividends that you receive, you can either choose to keep in liquid funds or reinvest in new shares. What many people take into account current dividends is the direct yield, which is the size of the dividend in relation to the share price. It can be seen as the interest rate on the investment you make, much like the interest rate you get on a savings account.