Share Investing

Share investing or share investing offers many potential benefits and the job itself can be done entirely online.

Thousands of listed companies can be bought and sold through a share market such as the Australian Securities Exchange (ASX).

Profits can be made by buying low and selling high. Below is an example of how it’s done. For now we’ll ignore buying and selling costs to keep things simple.

Let’s say you have $10,000 in cash and you decide to use this money to buy the equivalent amount in ABC shares. Let’s say the shares are currently valued at $20 each by the market. When you click the buy button on your computer screen, you will receive 500 shares in ABC. Congratulations! You are now the proud part-owner of a company. The people of ABC are now working for you and you are entitled to a share in the profits (or losses) that the company makes. As long as you hold onto the shares you may receive income in the form of dividends and/or benefit from increases in the company’s share price. When it comes time to sell your shares for whatever reason, the value of your shares may be turned back into cash. If the share price is $22 for example, then you will receive $11,000 cash (500 shares x $22). Your profit will be $1,000. Of course, if the company doesn’t do so well and you sell your shares at say, $18, then you will receive $9,000. You will have made a capital loss of $1,000.

Of course these are just the mechanics. How can you make money if prices can go up or down?

The share market, like other markets is full of job opportunities. Although the stock market tends to be a highly competitive marketplace, new regulations, technology, companies and investors create an endless supply of possible openings. For example, share prices move around for lots of reasons but most experts will agree that information is the main driver. If ABC’s main competitor XYZ surprises the market (i.e. most investors) by announcing bankruptcy, ABC’s share price will likely rise. If ABC announces a sudden drop in production, it’s share price may fall. The first people who uncover this information have an informational edge over the rest of the market through which they can derive profit. If you were a keen follower of XYZ and could see the writing on the wall, you could have bought ABC shares at a low price and sold them later at a higher price once the broader population of investors had been informed and reflected their knowledge in the share price.

This is just one example of how someone can profit from share trading. As you can see it’s not easy. Moreover, to make money online by investing in shares requires having some money to begin with. The advantage is that it is generally scaleable with hundreds of millions of dollars changing hands each day, just a small slice of the pie can be very tasty.

If you’re interested in learning more, read our post about online share brokers. For a way to profit from shares falling, see our post on shorting.

 

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