The share market is a place where you can invest in companies directly. This means that you become a shareholder and own a small piece of the company. When the company does well, your investment also benefits.
On the other hand, if their performance takes a hit, you take a hit as well. With the share market, there are lots of risks involved, which is why it’t not for everyone.
However, if you have a high risk tolerance and are willing to put in some time and research, you can make money from trading shares.
Table of Contents
How to trade the share market in order to make a profit
#1 Find out the current value of a company before investing
Before you even think about trading, you need to understand the fundamentals of the share market. This means researching various companies to determine their value.
This is crucial as you need to find a company that has a solid balance sheet and is undervalued by the market. It’s important to remember that investing in a company with a high market cap doesn’t make sense.
This is because the price you’re paying is too high. There’s a possibility that the share price reverts to its intrinsic value, and that’s lower than what you paid for it.
On the other hand, if you find a company that’s undervalued and has a lot of potential, you can make a lot of money.
#2 Don’t invest in just one company
There’s a chance that the company you invested in goes bankrupt and you lose everything.
It’s recommended that you diversify your portfolio and don’t put all your eggs in one basket.
This way, if one of your investments doesn’t work out as you expected, you can make up for the loss with other successful investments. Ideally, you should have 5-10 different shares in your portfolio.
This way, you have a diversified portfolio, and if one or two of the companies doesn’t do as well as you expected, the others will make up for it.
You can employ a few different strategies when it comes to diversifying your portfolio. You could invest in different sectors, countries, or industries.
You could also diversify your portfolio based on market cap and dividend yield.
#3 Watch out for price discrepancies
When you find a company you want to invest in, you need to keep an eye on the share price over time. If you see that the share price is dropping, it could be a good time to buy shares.
If you see that the share price is rising, you might want to sell them and make a profit. The price of the shares usually doesn’t move in a straight line.
Instead, it has its ups and downs, which is known as volatility. When the price is moving, you might see some price discrepancies between different brokerages.
This is completely normal and you shouldn’t be alarmed. Price discrepancies happen due to several factors, including timing and the order in which the orders are placed.
The price discrepancy might be large, but it will be corrected as soon as more orders are placed. You can also use a price discrepancy to your advantage by placing an order at an advantageous price.
#4 Be careful with margin trading
Margin trading is a risky way of trading the share market that you should use with caution. When you margin trade, you borrow money from your broker to buy more shares. This way, you can make a lot of money with low-risk investments.
However, if the share price drops and you can’t pay back your broker, you will lose the shares you currently have as collateral.
If you have a high risk tolerance and have a solid trading plan, you can use margin trading to your advantage.
Ideally, you should use margin trading only when you’re very confident in the market.
Conclusion
The share market is a great place to get started with trading. You don’t need to be a financial expert to make money from trading shares.
All you need to do is read a few books and do a bit of research. Once you get the hang of it, you can use the tips to trade on your own. There are a lot of risks involved in trading shares, but if you’re careful, you can make a lot of money.
Keep these tips in mind, and you should be able to make the most of your investment and make a profit from trading shares. Remember, it’s important to pick the right company and keep an eye on their share price over time.
