How Do You Make Money From Stocks?
Updated on March 13, 2019
You’ve heard the stories about people making a fortune in stocks, but how exactly are they doing it? At its simplest form, making money in the stock market can be summarized by one transaction: selling your stocks or bonds at a higher price than you paid for them. Granted this is often easier said than done, this transaction is the foundation of making money through securities.
Let’s walk through an example of this transaction.
- You’ve made up your mind that you're ready to invest.
- First you get an online stock broker. This will be an app that allows you to trade stocks from your phone or computer. We cover this in our “Where Can I Buy & Sell Stocks” video but ultimately your online stock broker is the middle man between you and other investors in the stock market.
- Next, you discover a stock you want to buy. Let’s say its Chelsea’s Coffee Company. You drink their coffee all the time, so why not own the stock. If the stock is trading for $10 a share, you would pay $10 to buy this share from another investor plus a small commission fee to your broker for executing this trade.
- Time passes and business has been booming for Chelsea! She has sold so much coffee over the past few years that her stock is now worth $20 a share.
- You decide it’s time for you to sell your share and collect your profit.
- You tell your broker to sell your share in Chelsea’s Coffee to another investor willing to buy it for $20.
- Once your broker finds a buyer, he/she will sell it to them and give you the $20 minus their commission fee.
- Voilà you made money in the stock market!
While this seems simple enough, remember this transaction can always go the opposite way, causing you to lose money. This is why it’s important to keep watching our videos and learn as much as you can about investing!