Many people in South Africa are really confused when it comes to all kinds of trading, including the trade with stocks, which we call stock trading. It may sound really scary and difficult but in reality, it is not that hard to get used to.
What exactly is stock trading?
In order for everyone to understand, we will give an example of stock trade. If we think the value of every given company as a pizza, then the bigger the company, the bigger the pizza is as well, therefore the slices grow as well. A slice of that “pizza” that we have is a share of that company. These shares are exchanged for money on the stock. The shares grow depending on how the company performs. When investors buy a given amount of stocks of the company, they directly support it and this lets it grow and progress, potentially leading to a never-ending cycle.
However, not everything is perfect and there are some problems, which makes the value of the shares go down. A company with a good reputation attracts investors because they see the potential in it. They buy shares, hoping that they will make a profit out of that. On the other side, a company with an unstable reputation and low-rated products will have way much smaller stock values and of course, no one will want to invest in such a company.
What are the risks of stock trading?
There is always a risk of losing money when trading and the prices change all the time but compared to other trades, the stock trading is comparatively stable, which makes them a perfect place for newcomers to start. No one can predict how a company will do in the future, so there is always a risk, that should not be ignored. An interesting fact is that the markets close for some time during the night in the area where it is situated, which stops the values change during that time. This can be really helpful for people who monitor the stocks all the time and are afraid that they are going to lose money.
What are some strategies for stock trading?
Since the market is not always predictable, the different traders use different strategies on the stock trading markets. The main differences between them are how long the trades would want to keep the stocks. Since the stock trading market is rather stable and does not change that much for a couple of days, the most profitable strategies are the long-term ones.
However, there are some strategies for short-term stock trading, which can lead to a profit as well. A lot of them can be found really well explained on the Internet, but now we are gonna focus on the simplest ones. A popular short-term strategy is the “Trend trading” which is pretty much self-explanatory. In order to make a profit out of this one, you need to invest only in the most profitable companies currently and get your money out before the charts flatten out and something bad happens. It is not a good idea to be greedy with this one because short-term strategies are not that safe compared to the long-term ones. The catch is to get your money out before the trend dies off and when applied carefully, it can be a really quick way to make money.
On the other side of the specter, you can pick a trusted company with a good reputation and just roll with it for a couple of months or maybe years. As the company slowly progresses, your money will too. A big drop in the value of the stocks should not scare you, even the opposite! Since your strategy is to keep your money for a long period of time, the stock trading market will have time to normalize and if you buy some stocks for cheaper, they will eventually go up in price, which leads to profit! Since this article is focused on the newer people interested in starting their careers on the stock market, we will keep it simple. If you are interested in learning new strategies, there is a lot that can be found on google, so do your research!
In conclusion, stock trading in South Africa is a good place to start your career and gain some experience. One of the best strategies is to keep your money in a given stock for a bigger amount of time. It may be really profitable to follow the trends too, but you have to be careful with everything you do, no matter how small the risk is. As you gain experience, you can try to implement different trading strategies in order to maximize your profit.