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The most exciting thing about passive income is that you make money without spending all your time and money on the task. Undoubtedly, the initial process of setting up your passive income business takes time and money.
But once you have your passive income stream, everything becomes easy. Take stock trading, for example. It lets you own a share of an established company and earn a dividend from the profits. Such an investment can run alongside your 8-to-5. Additionally, you control how much you want to invest and where. Read on to learn how to get into stock trading.
Table of contents
Why is stock trading popular?
When you invest in the stock market, your money becomes capital for a company to fund its operations. One advantage is that you start earning immediately as the company makes a profit, unlike when you decide to launch a company and watch it grow.
For example, buying Tesla stocks gives you a stake in one of the top companies in the stock market. In 2022, it made 1.34 million sales of the 1.37 million cars it built. This car maker enjoys 65.4% of the electric vehicle market in the U.S.
Stock trading is becoming more popular now because online trading makes the process easy. You can diversify your portfolio by buying stocks from international or emerging markets. For example, you can enter the e-commerce industry through Amazon or Shopify stocks.
In North America, the latter controls 55% of the market share. Plus, it’s present in over 150 countries worldwide. As a stock trader, you only monitor your investment to know the best time to increase or decrease your stake.
How to invest in stocks
Let’s discuss the following ways to earn passive income from stocks.
Individual stocks
Here, you select an individual company and enjoy control over every decision. As such, you decide when to buy or sell. To diversify your portfolio, you buy different stocks. It requires thorough research.
That’s when you analyze the market to find companies you want to own. The wealth of information can feel overwhelming, but you can narrow it down to the annual report to see the potential earnings for shareholders.
One of the advantages of single stocks is lower fees because this trading strategy doesn’t attract a management fee like a mutual fund. The only costs are when you buy or sell stocks.
Mutual funds
It’s the opposite of owning individual stocks. Here, a manager selects the stocks to invest in, and you get a share of the profits. Many investors bring their money together, so you have more resources to diversify the portfolio than when you buy individual stocks.
Stock ETFs
You can buy stocks from companies in one sector or a stock index. Thus, stocks EFTs are diverse compared to individual stocks.
In summary of these three categories, you can settle for one or diversify your portfolio. The most important thing as an investor or trader is to increase profits but minimize risks. Once you decide on the option that suits your stock trading goals, select a trading method.
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For instance, if you have experience, you can open a brokerage account on a trading platform. You’ll be responsible for selecting the stocks to buy or sell. There are a few things to consider as you search for a stockbroker. For example, check the minimum deposit required as you open your account. There are also commission fees.
Using an online stock broker is more convenient. Find one with a range of free trading tools and a simple interface. Once you set up an account, fund it. As such, you link your trading account to a bank to transfer funds. You’re now ready to buy stocks.
Stock trading tips:
Gather trading strategies
For instance, as a day trader, you make money from price fluctuations witnessed throughout the day. Hence, maintain a diverse portfolio and execute your trading decisions fast. Most traders use day trading platforms with charting tools and access to a diverse portfolio.
Day trading is one of those strategies that can earn you quick cash but also cost you heavily when you make the wrong decision. One way to minimize risk is to have clear investment goals. Know how much you are willing to lose and when to stop.
Keep up with company news
Company annual reports and news headlines affect stock prices. Therefore, keep up with bearish and bullish sentiments to make better trading decisions. For instance, when a company like Apple launches a new product, the market wants to see the reception it receives.
Learn about the stock market
It helps to know various stock market terms, such as stock order type. There are many types, including ask, bid, and spread. You can place a market order, where you enter a position at the current price, or a limit order, where you set the price that interests you.
The latter means you buy when the stocks reach that price. It’s better for risk management, but you can miss out on stocks if they fail to match your limit order.
Use a Stock market simulator to practice before you invest real money. It’s called paper trading. You could also benefit from learning technical analysis to read trading charts professionally. These charts contain information beneficial to your trading strategy, such as the price direction.
Final thoughts
The stock market is so diverse that you can invest in as many companies as your investment budget can support. There are also resources and tools for a smooth process. It’s even better now that online trading platforms have tools to help with technical analysis.
As a beginner, you can start with paper trading. You simulate the market until you learn how to buy and sell. It helps you practice strategies learned from various stock trading guides until you find the best. Also, paper trading teaches you how to minimize risk and set limits. Even as you join the live market later, don’t stop learning. As such, keep up with stock market news and read annual reports to know the background and potential of the company that interests you.
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