Persistently high inflation means that more and more people are looking for effective ways to protect their savings. Money kept on low-interest bank deposits simply loses value. An alternative may be to play on the stock market, which, although it is fraught with risk, gives a chance for high profits. Check how to start investing in the stock market and whether you can really make money on it.
Is it worth playing on the stock market?
The stock exchange is a place where investors meet to earn money by making transactions to buy and sell various financial instruments, such as shares. You can also become such an investor and you do not have to have a large pool of money for this.
However, as a beginner, you need to be aware of how the stock market works, because investing in it can both bring spectacular profits and become the reason for high losses. It all depends on your investment decisions, i.e. when you invest in certain securities, or which company shares you choose for your investment portfolio.
Playing on the stock market is primarily about buying instruments when they are cheap and selling them when their price rises. So it is worth knowing that, for example, the shares of the largest Polish companies in 2022 recorded large declines, which gives some chances for prices to rebound. On the other hand, it should also be taken into account that the economic situation in Poland and in the world is clearly deteriorating, which may have a negative impact on the stock market.
As an investor, you need to be able to analyze market data to best predict trends in price movements and make informed investment decisions. At the same time, however, you have to take into account some risk, because it is impossible to predict everything in 100% and there can always be losses at some stage.
Is it worth playing on the stock market? It is certainly worth it, but provided that you prepare well for it, i.e. gain elementary knowledge about investing, and properly plan your investment portfolio and investment strategy.
What are the options for investing in the stock market?
The stock market also provides quite a wide range of opportunities to invest in various financial instruments. The most important of them include:
- Shares – these are securities confirming shares in joint-stock companies. You can make money on them by buying them at a lower price and selling them at a higher price, but also on account of the dividend paid, which is part of the company’s annual profit.
- Bonds – these are debt securities listed on the stock exchange that can be issued by various issuers, including the State Treasury (treasury bonds), local governments (municipal bonds) and enterprises (corporate bonds). By issuing bonds, the issuer can raise funds for planned investments, which is why it incurs liabilities in this way. It undertakes to repay this specific loan with interest by redeeming the bonds within the specified period. This interest is the profit for the investor.
- Options – on the Warsaw Stock Exchange, investment instruments referred to as options are in the form of an agreement in which the buyer receives the right to buy or sell a specific underlying instrument (e.g. shares) on a specified date and at a fixed price.
- Investment certificates – these are securities in which the purchase of a share in a closed-end investment fund is certified.
- Futures – are intended for advanced market players who are willing to take higher risks for a high rate of return in a short period of time. It can be said that they are financial bets in which buyers bet on how much the price of individual companies will be.
- ETFs – these are investment funds that reflect the behavior of a selected stock index, so profits and losses from investments in their units depend on the quotations of the underlying asset.
What are the chances of making money on the stock market?
You have a good chance of making money on the stock market, but unfortunately it also comes with a high risk of losing money. Whether or not you manage to make a profit depends entirely on the investment decisions you make. Therefore, you need to properly maneuver between buying and selling a given asset and predict the right time to take specific actions.
It is also worth remembering that the stock market should invest in various assets in order to diversify risk. If the portfolio includes loss-making instruments, there is a chance to cover them with profits made from other assets.
Earnings on the stock market therefore largely depend on the construction of such a portfolio. The investment strategy and the time of investment are also important, because, for example, shares bring the greatest profits in the long term.
How to invest in the stock market? How to start?
If you want to start investing in the stock market, you will first have to deal with some formalities, because to play on the stock exchange you need, for example, a brokerage account.
Step One: Choose a Brokerage
First of all, you need to choose a brokerage house where you will open the account necessary to invest in securities. You can find a full list of them, for example, on the website of the Polish Financial Supervision Authority. However, it is worth knowing that there are also well-known banks among them.
When choosing a brokerage house, pay attention primarily to the following issues:
- investment opportunities – i.e. what instruments you will be able to invest in,
- a transaction service for placing orders via the Internet – it should be understandable and easy to use for you,
- access to online quotations and free analytical tools,
- the costs of maintaining the account and the amount of commission on orders to buy and sell instruments.
Step Two: Open Your Brokerage Account
The next step is to open a brokerage account. To set it up, you must be at least 18 years old and have a valid ID. It is also necessary to fill in the following documents:
- information form – it should include, among m.in, personal and address data, tax office data and bank account number,
- a special questionnaire – it is used to verify the knowledge of a potential investor about investing and the risks associated with it.
The next step is to conclude a brokerage account agreement. After signing it, your account will be activated and you will receive access data to the transaction service.
Step Three: Transfer Money to a Brokerage Account
Once you have set up a brokerage account, you can deposit money into it to play on the stock exchange. You can do it in cash or by transfer from your personal account. Remember not to transfer all your savings to a brokerage account.
As a beginner, start investing with a relatively small amount and preferably one that makes its possible loss acceptable to you.
Step Four: Determine the Amount of Shares You Want to Buy
Once you have funded your brokerage account, you can start your adventure with investing in the stock market. First, determine the type of shares you want to buy, and then calculate how many you can buy at a given price with the funds in your account.
Also take into account the commission that will be charged for the transaction of purchasing securities. You can place the order to buy shares in person at a brokerage house, by phone or simply on an online trading service.
What to keep in mind when starting to invest in the stock market?
Investing in the stock market is associated with high risk and you need to remember this, especially as a beginner. Your priority should be to learn how to minimize this risk by properly limiting losses and being able to catch any threats.
Ability to reduce losses
Losses are an inseparable part of playing on the stock market, but you can effectively limit them by taking the following actions:
- keep track of what is happening on the market, including the economic calendar and reports of stock market analysts;
- continuous expansion of knowledge in the area of the stock exchange;
- acting according to a previously adopted and accepted plan;
- diversification of the investment portfolio, consisting in investing in various financial instruments with different levels of risk.
In investing, the ability to correctly interpret market data and notice the trend in the market is crucial, for which knowledge and experience are necessary.
Thanks to this, you can make substantive decisions and not act under the influence of emotions. Sometimes you have to wait out the declines to get a chance to earn more on the entire investment.
Risks on the stock exchange – how to minimize them?
Due to the high volatility of the market, even the most experienced investors are not able to eliminate investment risks on the stock market. However, they try to minimize the risks occurring on it and do it mainly through the above-mentioned portfolio diversification.
It involves investing funds in different types of instruments using different strategies. This ensures that even if the price of some instruments starts to fall suddenly, others can make profits and offset losses, as their prices depend on the impact of different factors.