How Can One Earn Money In Trading?

You can make money from money by investing in the stock market.

In today’s economic climates, long-term banknotes and saving accounts don’t offer too many returns. One thing is for sure that stock trading is not a risk-free activity.

There is always a chance of risk. However, you can make stock trading potentially profitable by doing research work and investing in the right companies. In this article, you will find out how can one earn money in trading? 

Steps to be Followed to Earn Money in Trading

As it is mentioned earlier, if you have done research work and risk assessment, you can earn a lot of money in trading. Follow the step-by-step guide. 

By doing this, you will find many reputable sources. Free sources include Google Trend which is updated daily.

For finance news, you can subscribe to stock-trading magazines such as Traders World, Kiplinger, Bloomberg Business Week, The Economist, and Investor’s Business Daily. You can also follow the blogs written by some successful market analysts such as Deal Book, Zero Hedge, Footnoted, Abnormal Returns, and Calculated Risk. 

It is the most important step. Some of the top-rated trading sites are Interactive Brokers, OptionsHouse, TradeKing, Scottrade, and Motif Investing. Before you decide any site to use, make sure that you are aware of the percentage and transaction fees that will be charged by a website.

Before choosing any site, checks their online reviews. Make sure that the service you choose is reputable and trusted. Select such service that has the facility of a mobile phone app, low transaction fees, research tools, 24/7 customer service, and easy to read data. 

In stock-trading, only one would be enough. But at the start, it would be ideal to create an account on two to three websites, so that you can try out and narrow your choices later.

Check out the minimum balance requirements. If you want to start with only $1000, then you will have only a few platforms because others have higher minimum balance requirements. 

I made some mistakes not doing this when I started Options Trading, making silly trades (e.g.credit spread with debit instead), losing some time and money.  

Some trading websites such as Scottrade and OptionsHouse offer you the facility to assess your instincts without putting real money in. In this way, you can make money, but the good news is you can’t lose money.

This type of trading is different from actual trading. In actual trading, there will be some delay when selling and buying stocks. When you trade with virtual money, you don’t prepare yourself for the stress. 

Again, I lost my capital buying some stocks I don't know. Better to trade large-cap stock first if you are new.

You still have lots of choices, but you want to buy stock from companies that have a recognizable brand to you, offer something that people are looking for, a good business model, and the most important thing a long history of success. 

• Look for their public reports to check their profit. More profit means a more profitable stock. You can easily gather this information from their websites. If you are unable to find the required information, call the company and ask them for a hard copy. 
• Look for the company’s operating costs, debt, and leadership. Analyze their balance sheet. It will give you an idea of whether the company will be profitable or not in the future. 
• Compare the performance of a company with other competitor companies. 
• Analyze the quarterly earnings of the company. 

In this way, you can choose stocks you know first. 

After all the homework, now it’s time to buy your first stock. Companies with a good reputation and well-known stock histories are the right places to start. Start trading with small amounts that you can afford to lose.

Dollar-cost averaging is a good way to reduce market timing risk but you need lots of money monthly.

Alternatively, just trading up with a lump sum. Have an eye on the large transaction fees such as commission; otherwise, they can take your gains, and you will be left with a small balance when you sell. 

After testing around, you can explore Mid-Cap or Large-Cap companies. In the past, it was said that investing in penny stocks gives you an edge. However, that's not confirmed nowadays and better to keep your money in a company that will last longer.

Mid-cap companies have their market capitalization around $2 to $10 billion. Large-cap companies have market caps more than $10 billion. Market capitalization is calculated by multiplying the number of shares outstanding with the company’s stock price. 

In stock trading, there is a cardinal rule, which means buy low and sell high. If the stock value is significantly increased, you can sell your stock and invest the profit in other stocks. 

A professional fund manager manages the mutual funds, and it includes a combination of stocks. 

It is a crucial step, and if you are able to understand it fully, you can earn a handsome amount of money. 

Buy Low

Whenever you feel the stocks are at a lower price than its previous history, buy them. You never know when prices will go up or down. 

Sell High

Based on history, you want to sell your stock at peak value. When you sell your stock for more money than you bought them for, you will make money. 

Don’t sell emotionally

When the stock’s value drops and came lower than you have bought for, you want to get rid of it. There is a possibility that it may keep going down. However, it may also rebound. Selling in a loss is not easy but might be a good idea. 

You can understand the stock market through two methods.

Some people don't believe in fundamentals since it takes too long to read the annual report and might not be truthful or updated.

Some people don't like technical since it is volatile and has no basis in actual companies' performance.

These two methods will tell you when to buy and sell your stocks. No right or wrong on which to use. You will probably make investment decisions with a combination of these methods. 

Once you have done all the steps, follow the last step to make more money. 

• Develop your stock portfolio.
• Diversify your holdings. (some school of thoughts is to concentrate though)
• Reinvest/ your money based on expected portfolio balancing. 
• Take calculated risks when selecting stocks. 
• Beware of the downside of the stock trading.
• Talk to a group to share ideas and learn more
• Know when to get out. 

So, this is the way how can one earn money in trading? Take calculated risks and invest money in reputable stocks. Money attracts money, the more money you invest, the more profit you will generate.