Today, we will see exactly how to invest in stocks, addressing the main strategies you can adopt to make money investing in the stock market.
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In this way, you will have clarity and will be able to make your conscious decision, which is the first step when you are thinking about investing in the stock market.
You will still understand exactly all the advantages and risks of investing in stocks. So, keep reading and you will see exactly how to invest in stocks.
What are shares?
Shares are a small part of a company’s share capital. When you buy a stock, you are becoming a partner in the business, even if in a very small fraction.
Founders and partners hold some shares, but others trade on the stock exchange, those are the ones you can buy.
There are days of ways to profit from investing in stocks:
- Receiving dividends, which are parts of the profit distributed to shareholders;
- Selling shares for a value higher than the purchase value, taking advantage of moments of appreciation in the market.
Regardless of the way you choose, you will need to monitor the company’s performance. The behavior of the financial market, and understanding when to buy and when to sell is part of the process.
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Choosing the right strategy plays a key role when investing in stocks. In fact, this is the main question! We will address this in the next topic.
Strategies for investing in stocks
1. Day trade (How to invest in stocks)
Day trading is the name given to short-term operations carried out on the stock exchange. And when we say “short”, it is exactly that: the purchase and sale of the same stock happen on the same day, in some cases, even in minutes.
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Because these trades close on the same day, the shares never enter the investor’s portfolio. Settlement is 100% financial, that is, you win or lose only with the difference between the purchase and sale value.
For example, if you buy a stock for $10.00 and sell it for $12.00, you have made a profit of $2.00.
Day trading also has its own characteristics, for example, brokerage fees that are generally lower. By the way, the broker is very important, so you should research well to choose between so many options. Some interesting ones are: Charles Schwab, Fidelity, Avenue, among others.
In addition, taxation is different from that applied to long-term investments. So you need to be aware of the amounts charged by the State.
2. Swing trade
Swing trading offers another short-term investment strategy focused on capturing quick market movements. The difference is that the buying and selling of stocks takes place on different days, and can last a few days, weeks or even months.
Unlike day trading, where everything happens on the same day, swing trading gives you more time for analysis and decision-making.
This type of operation is quite common in the stock market, including among non-professional investors who want to take advantage of short-term trends without the pressure of day trading.
However, you should be aware, because like any variable income strategy, swing trading also requires care.
Start by choosing high-liquidity stocks, those that are easily traded on the market. This strategy allows you to sell your securities quickly whenever you choose, avoiding the risk of getting stuck with a low-demand asset.
3. Long-term (How to invest in stocks)
This is the most recommended strategy and where investors have the most results on the Stock Exchange. As the name suggests, it takes time for the results to appear and start receiving, but receiving what?
Basically, in the long-term model, it will receive dividends. Which is the division of the profit that the company obtained in the last year.
However, know that the stock price fluctuates, and these fluctuations do not always reflect the company’s real performance.
External events, such as political statements, international crises, or economic changes, can cause the market to react, causing the stock price to plummet. Therefore, long-term investment requires cold blood and patience, as it cannot let short-term changes affect its analysis and decision-making.
4. Long and short
In the stock market, the most common strategy is the long-term one, also called “long”. However, there is another way to operate in the market, suitable for those who already have more experience: the “short”, or short position.
Going short means doing the opposite of the traditional strategy. In this modality, the investor sells shares even before buying them, betting that their price will fall.
The logic is simple: sell at a high price and buy back cheaper, profiting from the difference.
But how is it possible to sell something you don’t already have?
The answer lies in the leasing of shares. Basically, you rent the shares from another investor through the broker, sell these shares on the market and, when the price falls, you buy them back and return them to the original owner, keeping the profit from the operation.
This strategy is known as “long and short”, and can also be used in a combined way, as follows: the investor maintains. A long position in a stock that he believes will rise (long) and, at the same time, sells another stock that he believes will fall (short).
However, going short involves high risks, because if the share price rises instead of falling, the loss can be great.
Advantages of investing in stocks
Like any investment, stocks come with both advantages and risks that you must understand before putting your money into the stock market.
- Possibility of gains: when you invest in stocks, you are “betting” on the growth of a company, that is, if it grows, you grow together.
- Dividends: those who invest in stocks can earn from the dividends distributed. These are portions of the company’s profit distributed to investors as dividends.
- Diversification: the stock exchange offers shares of companies of different sectors, sizes and profiles, allowing you to build a balanced portfolio.
Risks of investing in the stock market
Investing in stocks also requires attention to risks. Let’s look at the main ones:
- There is no guarantee: unlike fixed income, where the return is known from the beginning, in stocks there is no guarantee of profitability. The performance of a stock depends not only on the company’s results, but also on external factors;
- High volatility: stock prices vary daily as trades take place. This volatility can scare beginner investors, especially those who don’t like to take risks.
Therefore, before you start investing in stocks, know your investment profile and dedicate yourself to your studies, to build a diversified portfolio and protect yourself from this market fluctuation.
It is worth mentioning that the first step is to structure your financial life. Struggling with disorganization or drowning in debt? Take control of your finances today. So, get to know the best personal finance tips.
Conclusion (How to invest in stocks)
As you have seen, investing in stocks can be one of the most rewarding ways to build wealth, but only if approached with strategy, discipline, and knowledge.
It doesn’t matter if you choose day trading, swing trading, long-term investing. Or even long and short strategies, what matters most is aligning your investments with your financial goals and risk tolerance.
The sooner you start, obviously, with caution and commitment, the better your long-term results will be. So take the first step and start organizing and studying about the market to start the right way.