Three Strategies You Can Use To Make Money In The Stock Market

When it comes to investing in the stock market there is an abundance of information online. However, not many resources clearly explain how you can actually make money in the stock market. In this post you will find three easy-to-understand strategies that you can apply to start making money in the stock market.
Buy & Hold Stock ETFs
The simplest and easiest way to successfully generate investment income in the stock market is through buying stock index ETFs. ETFs are exchange-traded funds that function in a similar way as mutual funds, except they incur lower fees, as they are passively managed and are traded on the stock exchange. Stock ETFs usually replicate a specific stock index, such as the S&P500 or the NASDAQ. This allows you, as an investor, to benefit from an overall increase in stock prices, without the need to constantly monitor the market or stay up to date with financial news.
To build an investment portfolio using stock ETFs it’s important to pick ETFs with low fees that mimic the sections of the stock market that you want to invest in. For example, if you want to hold a broad range of US stocks, then you would purchase an S&P500 stock index ETF. If you also want exposure to tech stocks, for example, you would purchase a tech stock ETF and add that into your portfolio.
To generate income using a buy and hold ETF-based investment strategy you need to hold onto your investments long-term, so that you can benefit from the effect of compound interest. (Non-inflation adjusted) annualizes stock returns in the United States, measured by the S&P500 index, were roughly 9% in the last 15 years. Hence, if you invest $25,000 for 20 years at a 9% annual rate of return, your portfolio would be worth around $150,000 at the end of the 20-year investment period.
Day Trading Stocks Using Binary Options
Alternatively, if you are good with numbers, enjoy following the stock market and like learning about the factors that influence it, then you could start day trading using binary options. Binary options are financial derivatives that let you profit of a simple up or down price movement of an underlying security, such as a stock index, a currency pair or a commodity, within a specific time frame.
Whichever recommended binary options provider you will choose to place your trades, the mechanics of trading binary options are always the same. The way it works is that a binary options market for a specific underlying asset, such as the S&P500, will be quoted using a two-way price, for example, $49.50/$50.50 for a 10-minute market. You can then decide whether you want to buy a call (to bet that the price of the S&P500 will have increased after 10 minutes) at $50.50 or a put (to bet that the price will have decreased after 10 minutes) at 49.50. If you have, for example, bought a call for $10 per point and the S&P500 is up after the 10-minute time horizon is up, then you will have made $495 [10*(100-50.50)]. If the market had closed lower instead, then you would have lost $505 [10*(0-50.5)]. After the time horizon is up the value of the binary option will either be 0 or 100, depending on whether the underlying asset closed up or down at the end of the period.
Binary options are therefore a great tool to use for trading clear short-term trends, which occur after big market moving news, such as better or worse than expected economic data figures or important announcements by central bankers or politicians. For example, if a leading central banker states that rates will be kept lower for longer, then you can expect stocks to rally immediately after the announcement. This would be the kind of short-term trend you could capitalize on by buying a binary call option with a 5-minute time horizon, for example.
Stock picking individual outperformers
Finally, you could also adopt a stock picking strategy, whereby you pick and choose the stocks that you believe will outperform. This strategy is less involved in the day-to-day movements of stock prices and focuses more on the fundamentals of companies. For example, if you believe that Facebook will be the most powerful company in the world and overtake Apple, Microsoft and ExxonMobil in terms of market value, then investing a part of your capital in Facebook would be the right move. Or if you believe that Amazon will continue to dominate the ecommerce space and successfully expand its business into other fields and thereby grow their value, then putting some of your capital into Amazon would be part of a stock picking strategy.
The key, when doing your stock analysis, is to take into account all factors that affect the company’s stock price. That includes the company’s financials, stock ratios, analyst’s comments and views, overall market sentiment for the company’s sector, the state of the economy, etc.
Stock picking requires a lot of research and more financial understanding than the former two strategies. Hence, this is a strategy you should consider adopting once you have developed more investment knowledge and experience.