How to Optimize Your Money on the Stock Market

You may think that stocks are a complicated subject, but essentially a stock represents a chunk of a company. Owning a stock means that you own part of a company with a claim to it. However few the stocks are, it is an asset and can be cashed on.

To the untrained eye, the stock market may look like legalized gambling. If your stock appreciates, you win. If its value crashes, you lose. That is not exactly the case. Most new investors think that the stock market is a short term investment wagon which can either bring them big monetary gains or shattering losses. With this attitude, the stock market as a form of investment is just as reliable as a game of roulette.

Today's financial system is considerably more complicated than it was a few decades ago. The logic behind stock exchange is that companies require money for growth and expansion. A company does this by offering shares to the public on the stock market. Stock markets deal in selling and purchasing stock.

Basically, a person can make money on the stock market in two general ways:

1. Appreciation in share price

This occurs over a period of time, as it happens when the market values the increased profits resulting from expansion in the business or subsequent share repurchases. These make every share a representation of greater business ownership as a percentage of the total equity. For example, let's say a business sold each share in its initial public offering at $5 per share and experienced a growth rate of 20 percent for 10 years through share repurchases and expansion. The shares would be worth approximately $310 each as a result of these factors, assuming the same ratio of price to earnings is maintained.

2. Dividends

Owning shares traded in the stock exchange means that when the business realizes profits, you receive earnings depending on how many shares you own. These earnings can be used to purchase more shares or used for other things.

Prospecting traders can make money on the stock market through the following ways:

1. Scalper trading

In this type of trading, traders take advantage of minute market inconsistencies and quick changes in the market trends to make money. A scalper can only have a few seconds or a couple of minutes at most to make a high number of trades. A scalper tends to make quick numerous trades since their profit is usually small.

2. Intraday trading

Traders in this category may make money on a daily basis via the stocks. Their favorable trading positions never last longer than a day. Most intraday traders realize profits within a couple of hours. They trade as frequently as scalpers, but trade more often as compared to swing traders.

3. Swing trading

This involves a much longer period of time. Swing traders make money by putting fundamental and technical analysis into consideration. Their trades can last up to several days. Swing trading involves using swings in the stock market to make trades, rather than relying on movements. Advanced swing traders are normally referred to as position traders. These types of traders can hold favorable trades for up to several months.

All in all, making significant amounts of money utilizing stocks involves accurately gauging and predicting patterns in the value of stock.