Investing in the stock market can be a great way to cash out, especially in today's economic climate where long-term savings accounts and bank notes don't provide significant returns. Trading stocks is not a risk-free activity, and some losses are inevitable. However, with substantial research and investing in the right companies, trading stocks can be very profitable.
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Part 1 of 3: Preparation Stage
Step 1. Research current trends
You are many trusted sources reporting market trends. You can subscribe to stock trading magazines such as Kiplinger, Investor's Business Daily, Traders World, The Economist, Bloomberg BusinessWeek, or Investor.
You can also follow blogs written by successful market analysts, such as Abnormal Returns, Deal Book, Footnoted, Calculated Risk, or Zero Hedge
Step 2. Choose a stock trading site
Some of the best sites for trading stocks are Olymp Trade, IQ Option, Monex, and Mandiri Sekuritas Online Trading. Make sure you know the rate or percentage of transactions that will be charged before deciding which site to use.
- Make sure the service you use is trusted. You should read reviews of these services on the internet.
- Choose a service that has various facilities such as mobile applications, investor education and research tools, low rates, easy data reading and 24/7 customer service.
Step 3. Create an account with one or more stock trading sites
You probably won't need more than one site, but you can start with two or more so you can then narrow down your choices and find the best one.
- Be sure to check the minimum balance required for each site. Your budget may only be enough to open an account on 1-2 sites.
- Starting with a small amount, like for example IDR 10 million, may limit you on certain stock trading platforms as other sites require higher minimum balances.
Step 4. Practice trading stocks before putting in real money
Some sites like Olymp Trade and IQ Option offer virtual trading platforms where you can experiment for a while to test your instincts without actually using real money. Of course, you can't make money this way, but you won't be broke either!
Trading this way will familiarize you with the methods and types of decisions you will face when trading stocks but overall it doesn't represent real-world stock trading well. In real stock trading there will be pauses when buying and selling shares, which can result in a different price than the target. In addition, trading virtual money will not prepare you for the pressures of trading with real money
Step 5. Choose a reliable stock
You have many options, but primarily buy stock from a company that dominates its field, offers something that people continue to want, has a recognized brand, and has a sound business model and a long history of success.
- Look up the company's public financial statements to assess its profitability. Companies that are more profitable usually have more profitable shares. You can find complete financial statements of public companies by visiting their websites and looking for the most recent annual financial statements uploaded there. If not, you can contact the company and ask for a physical copy.
- Find the company's worst quarter and determine whether the risk of repeating the quarter is worth the profit opportunity.
- Research the company's leadership, operating costs, and debt. Analyze the company's statement of financial position/balance sheet and income statement and determine its profitability and future opportunities.
- Compare the stock history of a particular company against the performance of rival companies. If all technology stocks fall at one point, evaluate their relationship to each other instead of the entire market to find out which companies are consistently ahead in their industries.
- Listen to corporate profit conference calls. First of all, an analysis of the company's quarterly earnings posted on the internet about an hour before the call.
Step 6. Buy your first stock
when you're ready, jump into the stock market and buy a few reliable stocks. The exact amount depends on your budget, but at least buy at least two. Companies that are trusted and have a good history and reputation usually have the most stable stocks and are suitable to start with. Start with a few shares and use the amount of cash that can be forfeited.
Investors can start trading with only IDR 10,000,000. Be sure to avoid large transaction fees because your profits will be easily eroded due to a small account balance
Step 7. Invest in mid-cap and large-cap companies
Mid-cap companies (medium capital) are companies that have a market capitalization of between 30-150 billion rupiah. Large-cap companies (large capital) have a market capital of more than 150 billion rupiah, while companies with a market capital of less than 30 billion rupiah are small-cap companies (small capital).
Market capitalization is calculated by multiplying the company's share price by the number of shares outstanding
Step 8. Monitor the market daily
Remember the standard rule in trading stocks, namely buy low sell high. If the stock's value has increased dramatically, evaluate whether you should sell the stock and invest the profits in another, cheaper stock.
Step 9. Consider investing in mutual funds
Mutual funds are actively managed by mutual fund managers, and are a combination of various stocks. Your stock portfolio contains a variety of investments in various sectors, such as technology, retail, finance, energy or foreign companies.
Part 2 of 3: Understanding Stock Trading Basics
Step 1. Buy low
This means that the stock should be purchased when the price is relatively low compared to its history. Of course, no one knows for sure when the price will go up or down; this is the challenge in trading stocks.
To determine if a stock is undervalued, look for the company's earnings per share figures as well as buying activity by company employees. Look for companies in certain industries and markets that fluctuate frequently because this is where investors can usually earn big profits
Step 2. Sell high
Owned shares should be sold at their peak price based on history. You make a profit if you sell the stock at a price higher than the purchase price. The higher the selling price compared to the purchase price, the greater the profit earned.
Step 3. Don't sell in a panic
When a stock's current price is lower than its purchase price, your instincts may tell you to sell it immediately. Although there is a possibility that the price will continue to fall and never rise, there is also a chance that this stock will rebound again. Selling at a loss is not a good idea because your losses are locked in.
Step 4. Learn fundamental and technical market analysis
There are two main models for understanding the stock market and anticipating price changes. The model you use will determine how you decide what type of stock to buy and when to buy and sell it.
- Fundamental analysis makes decisions about a company based on its activities, reputation and character, and who is in charge. This analysis looks for the actual value of the company and the value of its shares in the end.
- Technical analysis looks at the overall market and what motivates investors to buy and sell stocks. This includes looking at trends and analyzing investor reactions to related events.
- Many investors use a combination of these two methods to make informed investment decisions.
Step 5. Consider investing in a company that pays dividends
Some investors, also called income investors, prefer to invest in companies that pay dividends. It's a way for shareholders to make money without worrying about the stock price. Dividends are company profits that are distributed directly to shareholders on a quarterly basis. Whether you decide to invest in this way or not, it all depends on your personal goals as an investor.
Part 3 of 3: Building a Stock Portfolio
Step 1. Diversify your stock
Once you have established several stock holdings, and have understood how buying and selling stocks work, it's a good idea to diversify your stock portfolio. This means that you invest in various types of stocks.
- Start-ups can be a good choice if you have shares of a long-standing company as the basis for your portfolio. If your startup is bought by a bigger company, you have the opportunity to make a lot of money quickly. However, be aware that 90% of startups don't last more than 5 years so this investment is very risky.
- Consider monitoring other industries. If your initial shareholding was mostly in technology companies, try looking at manufacturing or retailing companies. This will broaden your portfolio against negative industry trends.
Step 2. Reinvest your funds
When you sell a stock (hopefully at a selling price that exceeds the purchase price), it's a good idea to reinvest the money and profits into the new stock. If you make a little money every day or every week, over time you will build a successful investment.
Consider setting aside some of your savings or retirement fund
Step 3. Invest in an IPO (initial public offering)
IPO is when a company issues shares for the first time. This is a good time to buy shares of companies that are likely to be successful because it is not uncommon for the IPO price to be the lowest share price in the company's history (though not always).
Step 4. Consider calculated risk when choosing stocks
The only way to make a lot of money in the stock market is to take risks and get lucky. This doesn't mean you should expect everything to be a high-risk and resigned investment. Don't treat investing the same as gambling. You should thoroughly research each investment and ensure that funds can be recovered should the stock trading go awry.
- On the other hand, playing it safe only with established stocks usually doesn't allow you to "beat the market" and earn big returns. However, these stocks tend to be stable which means your chances of losing money are quite small. In addition, with a stable dividend payout and taking into account the risks, these companies can bring in greater returns than other riskier companies.
- You can also reduce risk by hedging investment losses. Find out how to hedge investments for more information.
Step 5. Be aware of the downsides of day trading
Brokerage companies usually charge a fee for each transaction, which when added up the total can be quite large. In the United States, if you earn more than a certain amount per week, the Security Exchange Commission (SEC) forces you to create an institutional account with a high minimum balance. Day trading is known to make a lot of people lose money and cause stress so you should invest in the long term.
Step 6. Consult a Certified Public Accountant (BAP)
Once you start making a lot of profit from the stock market, it's a good idea to consult with an accountant to discuss taxing your profits. However, before using the services of a professional tax consultant, it would be better if you try to do your own research carefully to avoid the cost of professional services.
Step 7. Know when it's time to back off
Trading the stock market is a lot like gambling and is not an honest investment in the long run. This is where it differs from investment, which has a longer and safer term. Some people can become obsessed with trading stocks, which often causes them to lose a lot (or even all) of their money. If you seem to have lost control of making rational decisions about investing capital, seek help before you lose it all. If you know a professional who is intelligent, rational, objective, and level-headed, ask for his help before you lose control.
