How To Make Money From The Stock Market For Beginners

From an outside perspective, the stock market seems... complicated. The stock market is often portrayed in movies as a way to get rich, yet nobody ever teaches us about it. At school, you never learn how to invest your money or what the stock market even is. So maybe you've searched about the stock market online before, only to be bombarded with charts and technical terms that seem like they're from another world.

However, here's the reality; anyone can invest, it's not as complex as it sounds, and there's no minimum amount of money you need to get started with investing. So let's delve into the real truth about making money with the stock market in 2021.


★ Consider this article as a stock market beginners' course – a perfect introduction to the stock market. We'll be answering questions like; 'what is the stock market and how does it work?', 'what are stocks and shares?', 'how do I buy shares?', and 'how to make money from the stock market?'. 

★ Other articles teach in-depth investment strategies or riskier investments like day trading, options trading, and forex – however, this is a complete stock market course for beginners who just want a crash course on how the stock market works and how to start investing.

What are Shares?

Let's say you start a business – since you created it, you own 100% of it, but to scale it quickly, such as opening more offices or hiring employees, you're going to need some money. And one of the most common ways to get money quickly is by selling shares in your business, which means giving away some of your 100% ownership in exchange for money upfront. 

A share is simply a piece of ownership in a company. But of course, many business owners are happy to sell some shares in their company, so they can raise more money because that will allow them to build a much bigger business worth a lot more. And on the other side of this trade, many investors are happy to buy shares in companies because they believe the business will succeed and be worth a lot more in the future. Meaning they can sell their shares for more money than they paid for them. 

However, here's where the business owner has a choice to make because there are two different ways a business can sell shares;

(1). Selling Shares Privately:
If you've ever seen a show like 'Shark Tank' or 'Dragon's Den', you would have essentially seen this in action. This is where you make pre-arranged deals to sell shares in your business to specific investors.

(2). Selling Shares Publicly:
This means anyone in the world can buy them, and here's where the stock market comes in.

What Is The Stock Market?

A stock market is simply a place where anyone can buy and sell shares in businesses that have opted to share their shares publicly. Now, the actual terms 'stocks' and 'shares' are sometimes used interchangeably to mean the same thing. But generally speaking, a stock refers to the actual company. For example, you may want to buy 'Amazon stock'.

Whereas a share refers to the smallest individual piece of a company you can buy. For example, you can buy one share of Amazon stock. Most big companies you can think of are listed on the stock market. Meaning you can pay to own a very tiny fraction of those businesses yourself. Apple, Microsoft, Netflix, etc., you can get yourself a piece of these companies by buying their shares. 

Now, why would you want to own such a tiny fraction of a company – simple, 'to make money!'. The idea of buying shares is the belief that the business will be worth more in the future. This means your shares would be worth more, and therefore you can sell them for a higher price than you initially paid. The difference between the amount you bought them for and the amount you sell them for is your 'profits'.

So, the goal here is to buy when the price is low and then sell when the price is high. This leads us to a new question.

How is the price per share calculated?

The most straightforward answer for this is "Supply & Demand". The only way you can buy a stock at a certain price is if someone is willing to sell it at that price, and likewise, the only way you can sell a stock at a certain price is if someone is willing to buy it at that price. Whenever a buyer and seller agree on a price, a trade happens. When you look up the current price of any stock, what you're seeing is the most recent price that a buyer and seller agreed on, but here's the thing, there's a lot of different factors that can influence supply and demand.

Firstly, if great news about a company is released, such as an exciting new product being launched or their financial results being better than expected, this kind of thing can cause a sudden price rise. This is because people are now more confident in the company and its future. As a result, more people want to buy the shares, whilst those who already own the shares are now less likely to sell them.

So, there's a higher demand but lower supply, which is why the price increases, because more people want to buy the stock than sell it. For example, let's say you own shares of 'Company X', which just announced record profits, and maybe before that news, you'd have been happy to sell for $10 per share, but now you can see how bright the future looks for 'Company X'. You and most other shareholders don't want to sell for $10 anymore, so buyers will have to pay more to convince you to sell your shares, thus driving up the price.

However, the reverse of this is true as well, if people lose confidence in the company. For example, if they're getting a lot of negative media attention, or a new government policy will affect the sustainability of their business, the price could drop quite fast. This is again down to supply and demand. After this bad news, people who own the stock may want to get rid of it, whilst not as many people are queuing up to buy it, so the price falls.

And so, the current price of a stock can often give you some indication of how the business is currently doing. But always keep in mind, it's not the full story. A good example of this is Tesla. Some stock market analysts argue that based on its fundamentals, meaning things like how many products it's selling, the profits it's making, and so on, Tesla's price should be lower. However, many investors keep buying more and more of the stock and refusing to sell their shares because they believe in what the company is doing long term and Elon Musk's vision for it. As a result of that confidence and belief, the price remains relatively high because supply and demand ultimately control the price.

An even more extreme example of this was in the '.com –dot com' bubble, when the internet was still new and exciting, and people were throwing money in at almost any company with a website. The problem was that there was so much demand and hype; people kept buying more and more shares in these internet companies even though many of them weren't even profitable. Eventually, reality caught up, prices crashed, and the bubble burst.

How To Buy a Stock 

Now so far, we've been thinking of the stock market as one big entity, but technically, there are many different stock exchanges worldwide. Here are the Top 10 in the world according to their current market value:

#1. New York Stock Exchange
Market value – $28.19 trillion
#2. Nasdaq
Market value – $12.98 trillion
#3. Japan Exchange Group
Market value – $5.37 trillion
#4. Shanghai Stock Exchange
Market value – $4.92 trillion
#5. Hong Kong Exchanges
Market value – $4.48 trillion
#6. Euronext
Market value – $4.85 trillion
#7. Shenzhen Stock Exchange
Market value – $3.49 trillion
#8. London Stock Exchange
Market value – $3.13 trillion
#9. Saudi Stock Exchange
Market value – $2.15 trillion
#10. TMX Group 
Market value – 1.97 trillion

You see, when a company starts selling its shares to the public in an event called an 'Initial Public Offering (IPO)', they choose which stock exchange they want to list their company on, based on which one's most relevant for them. 

This was a much bigger decision back in the day because these stock exchanges were physical locations that people went to, and they bought shares in person on the trading floor. After you make a purchase, you would get a physical certificate; however, nowadays, thanks to the internet and technological innovations, people can now buy shares online from the comfort of their home through any of the different stock exchanges worldwide.

You don't even have to speak to anyone, as there's an electronic record of your shares. Now the most common way people do this is by using a free trading website or app. In the US, popular places to do this are Robinhood and Weeble; in the UK, there's Trading 212, and no matter what country you're in. A quick Google search will reveal a similar equivalence – stock trading platforms in 'your country'.

Once you register on your preferred stock trading platform, you'll be able to browse all the available stocks and start investing. Although many platforms may look slightly different, the main features are always the same. Also, next to each stock, you'll probably see the stock symbol, also sometimes called a ticker symbol, which is simply an abbreviation of the stock's name. 

For example, Netflix is 'NFLX'. If you click on a stock, most platforms will give you some kind of graph showing how the stock price has changed. If you don't have that, you can just search – 'the company's name' + the word 'stock' on Google, and you'll get the same thing along with the option to change the period on the graph.

The next thing you'll notice on your trading platform is that it will ask you several things when you come to place an order. Firstly, it will ask you if you want to buy shares or if you already have some shares in that company. It will ask you if you're going to sell them. Secondly, it will ask the quantity of (or how many) shares you want to buy or sell. However, before you rush to start investing in your desired companies, there are several vital things you need to know when it comes to making money from the stock market.

Making Money From The Stock Market

When people talk about the stock market, different types of trading are happening. The first of these is:

(1). Day Trading

This is where you may buy and sell a certain stock within a very short term period, sometimes hours or even minutes, and whilst it's true you can make quick profits from this kind of trades, it's also through that the vast majority of people lose money by doing this. Research suggests that 80% of all day traders quit within the first two years, and some studies suggest only around 1–2% of people are successful in the long term when trying to day trade. The second type of trading is;

(2). Buying shares in companies you believe in more long-term and then holding those shares for months or even many years.

This type of trading happens because you believe that the company will grow, and thus the share price will increase. One of the most famous investors of all time is the billionaire Warren Buffett, and this long-term strategy is what he uses. It's also worth noting that the reason he's been able to make so much money from the stock market is that he meticulously researches companies looking through all their financial reports and plans to try and find companies he feels are undervalued. Meaning, the current price is lower, the more he thinks it should be. 

The problem is, for the average person, being able to do that level of in-depth research and analysis is complex and time-consuming. It's nearly impossible, mainly because you're competing not just with individual traders but with prominent hedge funds who have a whole team of analysts to research this stuff on a full-time basis. This is why some people get a stockbroker to study the companies, but that's still very risky. 

Warren Buffett has a great call on this, which is that – "Wall Street firms have made a fortune selling services, rather than making good investments". Instead, there's a third type of trading that's typically far more profitable and much less risky, which is;

(3). Index Funds

Imagine for a moment that instead of you having to research companies and try to figure out which to invest in, you could simply invest in all the top companies at once. That's essentially what an index fund is; some of the most well-known is the 'S&P 500', which tracks the stock performances of the largest 500 companies on the US stock exchange, or the 'FTSE 250', which tracks the largest 250 companies in the UK. 

There are many others as well, but let's just say you decide to buy one share of the 'S&P 500'. What you're essentially doing there is splitting your money into the top 500 companies in the US. It's just as fast and straightforward as buying an individual share of a company, except with these index funds, you can diversify by investing in all the top companies at once. 

So, let's talk money. With an index fund, the average annual return is generally between 6–10% which may not sound like much. But contrast that with traditional savings account where you may be getting less than 1% interest, the unglamorous truth is that index funds are the most reliable way to make consistent money with the stock market in a very passive way. You can simply set it, so you invest a certain percentage of your income every month, and then just leave it to build. And if you do that at a relatively young age and keep getting, let's say, 8-9% each year, that money will compound and grow substantially over time. 

Now, maybe that's not what you're looking for. In every investment, it all comes down to the risk vs reward ratio. Index funds are much lower risk than investing in a single stock because you're diversifying your investments and not putting all your assets in one basket. Still, if you invest in individual stocks, whilst the risk may be higher, the reward is also likely to be a lot higher if it goes well. So, only you can weigh up what risk vs reward ratio is better for you.

However, I will leave you with 5 final things to consider when investing in the stock market.

1. Don't invest in impulses and emotion:

Many newcomers buy when they see a price shooting up and then panic when the price drops, but remember that you haven't lost money until you sell your shares. As long as your feelings about a company haven't changed, if anything, it's better to buy when the price has gone down. In other words, "buy the dip".

2. With any investment in the stock market whatsoever, only invest what you can afford to lose:

It's recommended to invest a certain percentage of your monthly income while keeping a separate emergency fund and savings if you need quick access to the money. Trust me, the market always bounces back over a long enough period. This is why index funds can be great if you don't need that money for a while, but there will be some dips along the way, which is why you need to have a separate source of funds in case you need them.

3. Be wary of scammers offering you a guaranteed way to make high returns from the stock market:

If they knew how to make so much money from stocks, they'd be investing all their money into it instead of selling you products or services. It's the same with groups trying to tell you that you should invest in a specific stock. Quite often, they're just trying to pump up the price, so they can dump their shares for profits. So, whilst you listen to a broad mix of sources, ranging from news and Reddit opinions, remember that nobody can ultimately perfect the time market.

4. If you do have a lump sum of money that you want to invest into the stock market, it's generally considered wise to dollar cost average:

This essentially means instead of throwing all your money in at whatever the price is, spread the investments out more gradually over a few weeks. That's because if you put in all your money right now, it could be an exceptionally high price today, so spreading the investment out will generally give you more of an average price.

5. Whilst there are risks, investing is not the same as gambling because investing increases the overall wealth of the economy:

This is because you're investing in something that's creating more value and wealth. 

I wish more people were introduced to the stock market, especially at an early age. It may not make you rich, but it can be a very reliable way to save and invest your money.

I understand that this article may seem slightly overwhelming. Nevertheless, if you go back through the relevant sections, hopefully, you'll see that investing is no longer just for the rich, anyone can invest and make money from the comfort of their home, and it's not that complicated once you get started. Just always make sure you're investing with the risk vs reward ratio you're comfortable with.

Thanks for reading. I'll see you next time. Cheers!
Alade Habeeb

I am a writer with a sense of creativity to write on multiple topics. I create engaging, thrilling and entertaining contents and I always take the time to edit my work well before publishing. I follow all the latest trends and read about recent happenings in the entertainment industry to always update my readers.

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