There are three ways in which people make a lot of money and get rich: by setting up a business, by investing in real estate and by trading shares on the stock market. In this article we look at how you can make money on the stock market by buying undervalued shares and by selling overvalued shares.
How can you make money on the stock market?
You can make money in the short term by actively trading shares. You then speculate on price rises and price falls. If you have more patience, you can also buy shares on the stock market for the long term. Let's see how both methods work.
Active trading on the stock exchange
First, we discuss the method you can use to generate a good income in the short term. You can do this by actively trading in shares by using an online broker. When you actively trade in the prices of shares, you buy or sell them and hold them for a few hours to days.
Active trading allows you to earn a considerable amount in the short term by taking advantage of price changes. When you go long (buy) you earn money when the price rises and by going short (sell) you earn money as soon as the price drops. By responding to the market developments, you can take advantage of the price fluctuations and make good money.
Do you want to try active trading in shares completely without risk? Then open a free demo with a broker and find out if you can make a profit from buying and selling shares. And remember: investing always involves risks!
Investing for the long term
It is also possible to buy shares for the long term. When you buy shares physically, you can only benefit from a rising price. Actually, buying and holding shares is therefore something people do to achieve a nice profit over a period of several years.
An advantage of this way of investing is the fact that you also receive dividends on your shares. A dividend is a form of profit sharing. The board of the company in which you invest determines how much dividend you are entitled to. The amount you receive often depends on the economic situation and the company results.
When you start investing on the stock exchange in the long term, the transaction costs are critical. Transaction costs can significantly reduce your return. It is therefore advisable to compare the different brokers. In the article ‘buying shares’ you can discover the best brokers to invest with:
How does the stock market work?
Before you start trading, you must understand how the stock market works. In the past, the stock market was still a location where people were shouting at each other to make the best deals. Nowadays, thankfully, all stock exchanges are online. You do not have to shout any more to get the best price. Via the Internet, the stock prices are updated rapidly so that you can always purchase the shares at the right price.
The price of a share is created by computer calculations. Smart computers track how many people want to buy and sell a share at any given time. When the demand for shares increases, the price automatically increases. When the number of buyers decrease, the price again drops somewhat. When you start trading on the stock exchange, you have to take the interaction between supply and demand into account.
You gain access to the stock market by opening an account with a broker. A broker is a party that can buy and sell certain shares on your behalf.
What is the best strategy for trading on the stock market?
If you really want to make serious money on the stock market, it is best to combine both methods. In the short to medium term, you can make money by trading quickly on the stock market. With the income you generate by trading quickly on the stock market, you can pay the bills, go on holidays, and buy nice clothes.
When you invest the money that remains in valuable, strong stocks, you generate a second passive income stream. By holding the shares you can create a fixed flow of dividends.
It takes money to make money
The stock market has been on the rise in recent years. This is mainly due to low-interest rates. As a result, it is not attractive for savers to keep their money in a bank account. More and more people know how to find their way to the stock market. All this ensures that the stock market has a lot of space to grow.
Investing money in the stock market is therefore wise. When you leave the money in your savings account, your assets slowly decrease. However, it is important to invest in a smart way. Make sure you have a buffer for unexpected expenses. That way you increase your chance of making money on the stock market.
6 tips for better results on the stock market
Do you want to achieve better results with your stock market trading? With these 6 tips, you will know where to go to make more money from your investment activities.
Tip 1: Open an account with a broker
How are you going to learn to invest without opening an account with a broker? The answer is simple... You will not! It is therefore advisable to open an account with a good broker. That way, you have direct access to the exchange and you can discover what works best for you. Use the button below to directly compare the best brokers:
Tip 2: read books
There are quite a few good books about investing on the stock market. You can learn a lot from other investors and it is definitely advisable to delve into the strategies of other smart traders and investors. Great books include Market Wizards and The Intelligent Investor.
Tip 3: read articles
Moreover, on the internet you can find many interesting articles about stock exchange trading. On trading.info, for example, you will find several informative articles that can help you achieve better results on the stock market. Our investing tutorial can be a good starting point to get better results:
Tip 4: Follow successful investors
I also follow several successful investors myself. Analyse their behaviour and discover the how and why behind their success yourself. By examining at what the big giants invest in, you can quickly achieve better results. I am a big fan of Warren Buffett. Do you want to know what his secrets are? Read this article about the investment hero:
Tip 5: trade with the market
Sometimes I talk to people who say they want to be a successful investor. I then ask them how much time they spend monitoring stock prices. When they say zero hours, I laugh. How are you going to develop a feeling with the market when you are not even watching them? Even a simple website like CNBC can keep you up to date with the latest news.
Tip 6: Buy your first share
There are plenty of 'investors' who are stuck in the dream phase. They philosophize about how beautiful and smart it would be to make money on the stock market. Ten years later, the stock market has risen sharply, and they still have not taken any action. Buying your first share can therefore be a good, activating step.
Making money on the stock market requires insight
Many people lose money investing. You therefore need sufficient insight to achieve good results on the stock market. Your strategy also depends on whether you focus on the short or long-term.
Please note that making money on the stock market requires significant insight. For example, making money in the short term works differently than making money in the long term. In the short term, all you need is volatility (movement on the stock market), as you can make money in both rising and falling markets.
Do you want to learn how you make money on the stock market by responding to short-term trends? In the day trader guide you can read everything you need to know to become a successful day trader. When you want to make money on the stock market, it is important to perform good analyses. In the article on technical analysis you will learn how this works.
People who actively trade often carry out technical analyses. With technical analyses, you try to recognize patterns in a graph. You can then make smart decisions and respond to this. Do you want to know how this works? Read our article on technical analysis:
When you start trading on the stock market with a long-term view, you will have to make your decisions differently. In that case, you buy shares for the long term, so it must be the right decision. Verify the profitability, research the sector, and make predictions for the future, to determine if the stock is worth its price.
The longer your investment horizon, the more important the fundamental figures behind the company are. In our fundamental analysis guide you will learn everything you need to know.
Control your emotions
When you want to make money from investing, you need to control your emotions. The difference between a professional and a starting stock exchange trader is not about skills. No, the biggest difference is usually the control of emotions. If you want to be successful trading, you will have to keep your emotions under control as much as possible. Do you want to know more about the role of emotions on investments? Read our article on emotions and investing: