When you first start getting interested in stock market investing, you naturally have way too many questions.
But there’s one that is the most crucial of all and will determine whether you move forward with investing or not.
How do you make money off of stocks?
The short and most common answer that you probably are already aware of is to buy low and sell high. But what if I told you that there are some other creative ways to profit from stock market investing too?
Making money through the stock market isn’t easy (nor is it supposed to be). But the variety of ways to increase your wealth makes it more accessible to various people with different needs.
No matter whether you have a high-risk tolerance or you are very conservative, the stock market offers 4 ways for you to approach investing and profit.
It is therefore very likely that it has you covered.
So, let’s see how to make money off the stock market…
1. How to Make Money off the Stock Market by Buying Low and Selling High
First, the obvious… The most straightforward to make money through the stock market is by buying stocks at low prices and then selling them at higher ones.
But here’s the deal. No matter how simple this sounds, it’s insanely hard to pull off consistently.
More so, it doesn’t seem like common sense agreeing with this approach convinces most people to apply it. Most investors buy “hot” stocks at extraordinarily high prices and then sell them as soon as falling prices give them panic attacks.
Buying low and selling high may be a no-brainer but most of us fail to apply it in the real world.
What can certainly help you in this regard is to invest based on a principle and stick to it. When you thoroughly research a company and ignore volatility, you increase your chances of buying low and sell high.
Before you invest, take a look at this article to see what strategy you think would suit you best. All of them have their merits but you should choose the one that you are most likely to apply with discipline. Not the one that seems most exciting.
If you do this, buying low and selling high may not prove that difficult in your case after all.
2. How to Make Money off the Stock Market by Collecting Dividends
While real estate investing may be the best way to create passive income, it’s also the hardest area for newcomers to enter and successfully pull it off.
The good news is that passive income is accessible through stock market investing too.
A lot of companies offer shareholders portions of their earnings that are called “dividends”. Even if you buy a stock because you think it will appreciate in price and you’ll be able to profit by selling it in the future, it’s always nice to have a certain stream of income in the meantime.
At the same time, investing in stocks that offer satisfying dividends but for whatever reason don’t rise in price at an acceptable annual rate can still be beneficial. Such stocks can at least protect your money from inflation and even provide some great returns over the years.
For many, receiving dividends isn’t just an after-effect of investing in stocks though. There are professional fund managers and investors who solely focus on companies that offer high dividends with total disregard for price movements and no intention to sell anytime soon.
This approach is called dividend growth investing. If you’re interested in passive income, then it might be for you.
Before you start searching for stocks that offer high dividends, you should first learn some basics. There are some factors for successful dividend growth investing that you should watch out for.
3. How to Make Money off the Stock Market by Selling Short
Now, here’s a creative way to profit from the stock market that many beginners don’t know about.
Short selling is a method of profiting from falling stock prices. Here, you don’t have to buy low and sell high, but actually the reverse. I will explain…
When you sell a stock short, you first borrow it from your broker and immediately sell it in the open market. Then, if the price of that stock falls, you can buy it back at this lower price, return it to your broker, and pocket the difference.
Now, I know that selling stocks short sounds like a great way to stock market profits, but the risk is very high so it’s best to only get into it when you’re absolutely confident in your forecast and still be ready to lose a lot.
That’s because of the exposure to losses if the stock price actually moves higher. Theoretically, the stock price can rise to infinite price levels. But it can only go to zero (not exactly zero but close to it) if the company goes bankrupt. That means that there is no bottom for your potential losses on the horizon while there is a ceiling for your potential profits.
This high risk / low reward situation should put fear into beginners. The risk gets generally more manageable once you get some experience trading stocks first.
4. How to Make Money off the Stock Market by Trading Options
Most people also don’t know that you can profit from the stock market without even buying and selling any stocks. You can buy derivatives such as options that are influenced by stock price movements instead.
Simply put, options are contracts that give you the “option” to buy or sell the underlying stocks at a certain price.
There are two types of options contracts:
One is the call option that gives you the ability to buy a stock at a predetermined price (the strike price). This is for traders who believe that a stock price will move higher in the short-term future.
The other is called the put option and it allows you to sell the stock at a certain price. Made for traders who forecast that a stock will fall in price in the short-term future.
So, in other words, a call option allows you to profit from rising stock prices and a put option from falling prices.
Now, note how I said “short-term”. That’s because options contracts have an expiration date. You will have to exercise your option before that date. Meaning that you will have to buy or sell the underlying stock at the strike price.
But wait a minute. I said that you can profit from the stock market without buying and selling stocks. That wasn’t a mistake. You can actually choose not to exercise your option and sell it in the open market instead. But if you intend to do this, you need to make sure there is enough trading volume for that particular option.
Now, the benefits are obvious. You can trade options and profit from both rising and falling stock prices and you can do this without even having to buy the underlying stocks.
But similarly to selling short, there is a high risk involved here as well. That’s because when you buy an options contract, you pay a price called the premium price. That can be viewed more like an expense instead of an investment in order to see it more clearly.
If your forecast turns up incorrect and you can’t buy a stock for lower than it’s priced or sell it for a higher price, you could end up with nothing. That of course doesn’t happen often, but the value of the option when the stock fails to reach and surpass the strike price is much lower than what you had paid for it (premium).
Theoretically, you stand to lose the whole amount you have paid for the option.
But the good news is that you know what you stand to lose; something you have already given.
With short selling, you cannot possibly know what you will have to pay to buy back the stock and give it back to your broker.
But still, options trading is a high-risk practice and should only be applied by experienced traders.
Conclusion
So, now you know how to make money off the stock market!
Of course, it isn’t easy and it takes a whole lot of work if you’re serious about it. But there are so many different ways you can make money through it that you can at least apply different methods to see what works for you best.
As you witnessed, buying low and selling high isn’t the only way to profit from the stock market. But it may be the most accessible for a beginner. So, it’d be a good idea to start with this (and possibly with dividend growth investing) and see where you can go from there if you still need to.
My goal was to make you see the 4 main ways you can make money off the stock market. If you think I accomplished that, please share it with others using the social media buttons.
Also, if you have any questions, leave a reply below and I’ll get back to you as soon as I can.
Take care and invest wisely…
Disclaimer: This information should not be viewed as financial advice. You should consult a financial advisor or do your own due diligence before you invest. The owner of this website and author of this article are not to be held liable for any undesired result by anyone who uses this information that is provided here in any way.
