investing

Trading or Playing The Market? A Run Through of How to Make Money

Most of us would like to make a bit of extra money on the side. Our salaries do not go as far as they used to and making ends meet these days is a bit of a challenge. I know this as well as anyone and I’ constantly looking for ways and opportunities to make a few extra pounds here and there. Most of my regular income just goes on regular month to month expenses to it’s always nice to have a bit left over at the end of the month for me! (and my family of course).

Today, we’re going to look at the stock market and trading in general. Now, don’t get nervous, I’m not going to bamboozle you with city terminology and make things so complex that it’s quite frankly offputting, I’m just going to run over the basics and if you think it’s something you might be interested in then you can go off and do your own research. Below I’ve listed all the days you can make money using stocks and by trading in general. You can get started via any of the methods below with a relatively low startup capital investment so pretty much anyone can get involved.

Regular Stock Trading / Blue Chip

This is the regular trading that you’re all used to. You buy a share in a big/popular company for a given amount at a given time and either sit on it hoping it goes up in value or you sell it for a quick/low return. Most UK banks will offer an investor account for you to deposit funds into and there are countless online stock brokers who charge as little as £5 for each trade. Lots of people opt for shares in firms they know, big firms that they don’t expect to lose money on. Some and often the most profitable people though tend to look at emerging markets and start ups for a “good bet” and put there money into that in the hope of the really big return.

Penny Stocks

Penny stocks work in the same way as regular blue chip stocks as far as trading goes. You’ll need an investment account to deposit funds into and you’ll need a broker. The only real difference between the stocks is the price and the sort of companies offering them. As the name suggests, they’re low value stocks which you’d typically buy a lot of in bulk.

Forex / Foreign Currency

Playing the currency markets is something that literally anyone can get into. We all know how currency work and how the price of one currency fluctuates against the other. Like when sometimes you get 1.5 Euros to the £ and sometimes you get 1.2 Euros when you go to take out your holiday money for your annual trip to Spain. These different prices are due to fluctuations in the currency market and one currency being worth more at a given point in time than another. The Forex or foreign exchange market allows traders to trade currency based on these fluctuations. So you’d buy euros at 1.25 to the pound with a view of selling at 1.30 to the pound. Some traders literally buy currency in huge amounts and sit on it until a point where the currency fluctuates massively in their favour before selling. Some take advantage of tiny movements in price by investing huge amounts in the hope of a slight sway either way. You can find more information on forex trading at forextrading.ltd.uk.

Playing The Spread

This method is becoming more and more popular. To play the spread you need to effectively bet on the difference between two values and the return is calculated based on the range of the values. To use currency as an example, you can get on how the dollar will be valued against the £ in the next 5 minutes. If it’s currently $1.20 to the £ and you had an insight that it will be $1.25 to the £ after a given period, you could effectively “bet” on this happening. The wider the spread e.g. the bigger the margin that is correctly predicted, the more income you’ll generate. Here is a great guide on spread betting.

Arbitrage Trading

This is one of the more common ways to make money via trading as it’s somewhat risk free and doesn’t need a great deal in the way of initial funding. As the term suggests, arbitrage trading is literally taking advantage of the difference in stock/share price or even fluctuations in currency on a given market in comparison to another one. In simple terms, image one market selling currency at $1.20 to the £ and one market buying currency at $1.21 to the £. You could buy in one place and sell for more in another immediately thus getting an immediate return on your investment plus profit. The same goes for stocks and shares. The margins tend to be typically small but with enough capital even a few points difference can mean big money.

Conclusion

As you can see there are a lot of opportunities out there. If you have a basic understanding of each of the above in my opinion it’s enough to get started. Remember, like with any investment, you need to allow for losses even if you fully expect to become a success. If it was easy, everyone would be doing it so you will find it challenging. But, with that said, there is a lot of money to be made and a lot of it is being made by regular people just like me and you so if you do have some spare money sitting around and want to try your hand in the markets then it’s worth doing so.