Forex stocks: learning to earn in the stock markets
Since the beginning of 2018, Facebook shares fell 16.78%, while Amazon shares, on the contrary, added 46.59%. With the correct arrangement of emphasis (opening a short position on shares of a social network, a long position on Amazon), investors could earn more than 60% per annum.
About what the Forex stock market is and how to make money on it, read on.
How to trade stocks on a stock exchange for a beginner
Suppose the owner of the company has a working business for the production of something. He wants to expand production, but he does not have enough money. Then, on the basis of his enterprise, he creates a joint-stock company. A stock is a type of security giving its holder the right to share participation in the activities of a joint-stock company. In other words, if the share capital (company value) is divided into 100 shares, then one person has 1% of all votes.
A stock exchange is a platform where securities of companies that have passed stock exchanges (which have met all the requirements for registering) are traded. It is a kind of stock trading market. To attract investors, the owner of the company places his stocks (initial IPO) on the stock exchange, which are then sold and bought in the public domain. The price of shares depends on both internal (development of the company) and external (geopolitics, sanctions, sales markets) factors.
Stock indices are composite indices calculated on the basis of a certain group of securities (index basket). They are both a means of earning money (when it comes to futures for a particular index) and an indicator of the country’s economy. They include the largest companies that shape the economy of a country or industry. Stock indices can reflect the price dynamics of a particular sector of the economy and the entire stock market as a whole. Compared to investing in stocks, they are considered less risky, as investing in the index, the investor invests in all companies in the index, diversifying risks.
The most common questions about trading stocks and index futures:
- What stocks are best to trade? This is a rhetorical question. It all depends on the strategy chosen by the trader and the level of risk. There are examples in the history of trading when shares of “garbage” companies were purchased, which were then turned into mid-tier companies. There are venture investment strategies, for example, investing in securities of biotechnological and pharmaceutical companies. Those who prefer not to pursue profit and minimize risks choose indexes and technology companies, for example, Apple, Alphabet, Amazon, etc.
- Where to trade stocks over the internet? There are two options: either on the stock exchange or the OTC market. Both options have their advantages and disadvantages.
- How to choose the companies that will bring profit? If there was an answer to this question, everyone would already be millionaires. It is important to work out your own strategy, diversify risks, intuition and constant comprehensive analysis of the market and the company itself.
- What stock exchange to trade on? At any world level: NYSE, NASDAQ, CME, TSE, etc.
How to make money on stocks using Forex broker
Not only exchanges and stockbrokers allow you to earn on exchange rate fluctuations of stocks. Forex brokers also allow this opportunity, and they have their own advantages. Forex is an over-the-counter market, which, unlike the exchange, does not have its own physical platform (i.e., the exchange). It’s simplistic to say that trading occurs virtually according to the following scheme:
- A trader who wants to make money on Forex stocks gives an order to a broker to buy or sell an asset, indicating the volume of the transaction (the number of shares, futures, etc.).
- The broker sends an application to the external OTC market, in which large market participants are present: market makers, investment banks, funds, etc. They form the price at which they are willing to sell/buy an asset. If the best offer (best price) matches the one proposed by the trader, the transaction is carried out, which is immediately displayed in the trader’s personal account (on the platform).
- After a while, the trader gives the broker a reverse order, which is also sent to the external OTC market. If the counterparties are at the proposed price, the transaction is closed.
The main difference between Forex stock trading and stock trading is that in the first case, the trader earns on the so-called CFDs, without becoming the actual owner of the securities. If a trader buys securities on the stock exchange and disposes of them at his discretion – up to the transfer of inheritance, then on Forex the trader earns only on the difference between the purchase and sale price of the asset. Rates (quotes) of stocks on Forex differ from stock ones since the difference between the purchase and sale price of an asset (spread) is the broker’s commission.
Other differences between Forex and exchange trading:
- A number of tools. On the exchange, as a rule, there are several listing options where you can purchase securities of hundreds of companies. The number of offered stocks on Forex is limited to 50-100 instruments. For some, this may seem like a flaw. But it is worth noting that Forex brokers usually select only the most famous and stable companies in their arsenal of paper, performing part of his work analyzing the financial condition of the company for the trader.
- Commissions. In Forex, this is a swap – payment for transferring an open position the next day. With exchanges with commissions, it’s more complicated. This may be a fee for each transaction, and a commission for the storage of securities to the depository, etc. Before you buy stocks on Forex, it makes sense to compare all associated costs.
- Leverage. In Forex, brokers provide longer leverage than stockbrokers. In part, this may seem like a disadvantage, as this is the way to a quick loss of deposit. But no one forces them to use it? Therefore, this tool will be of interest to professionals who know how to use it.
American stock exchanges, you need more than 1000 dollars. The USA. In Forex, you can start with much smaller amounts: the minimum deposit for many brokers is in the range of 1-100 dollars USA. There are also cent accounts. They are more likely to train and educate their own character, but the fact itself is important – you can earn real money on them.
It is also worth remembering rebate. Rebate is a partial compensation of the spread that brokers go to in order to attract customers and encourage traders to increase trading volumes. Rebate can be provided by both the broker and a third-party service. This is another nice addition that is not on the exchanges.
Otherwise, trading in securities on Forex is similar to trading on exchange platforms. Forex stock quotes arrive on the platform in real-time because delays in transactions with securities are excluded (it is possible to use scalping, trading strategies on the economic calendar).
How to trade stocks on the stock exchange and Forex for beginners :
- Assess macroeconomic indicators. Global stock markets are affected by geopolitical events. If destabilization appears in the world, investors prefer to close their positions and wait. Example: US and Chinese trade wars, which weakened almost all stock indexes.
- Analyze industry and competitors. If the industry as a whole is experiencing problems, then the probability of growth of an individual company is a big question. The success of competitors is also important. If in the same area one company launches a better product on the market, then investor money from other companies flows into the leader.
- Rate financial statements and multiples. These include EBITDA, P / E, and EPS, EV, etc. Estimate analysts’ forecast for stock prices. For example, if the publication of positive statements results were less than predicted, then stocks traded on Forex will fall. Example: the situation with Facebook, whose shares fell twice after the publication of reports for the 2nd and 3rd quarters of 2018.
- To get acquainted with the internal situation in the company. We are talking about top management, products, developments, internal corporate conflicts, etc. All this affects the mood of investors.
Summarize. Stock quotes, futures and stock indexes on Forex – this is a real opportunity to earn with relatively moderate risk. To do this, you need:
- choose a broker, go through registration and verification (identity verification procedure);
- download the platform and deal with its functionality;
- select the company of interest and analyze the movement of the value of shares for a fixed period. Find patterns that push the price in one direction or another;
- open a deal in one direction or another, follow quotes.
Successful trading for you!