Stocks Basics 2: How are profits made in the stock market?

How can I profit in the stock market?

Investors can profit in the stock market through any or a combination of the following:

• Capital Gains

These are profits made due to an increase in the market price of a stock from the buying price.

• Cash Dividend

A dividend given to shareholders in the form of cash. It is computed by multiplying the number of shares held by the cash dividend rate declared.

• Stock Dividend

A dividend given to shareholders in the form of additional stocks. It is computed by multiplying the number of shares held by the percentage of the stock dividend declared.

• Stock Rights

Stock rights offering is the option given to the present shareholders to buy additional shares of stock at a price lower than its market price.

Is there any risk involved in stock investing?

Yes, since risk is always a part of any investment. And because stock investment is the most volatile, a better attitude would be to limit and manage your risk. A maximum level of gain or loss should be set and calculated decisions should be made when this level is reached.

Do I need to keep track of my investment?

Yes! Having placed some amount in stocks, you should spend some time and effort in studying your investment. You should keep track of the stock price and follow closely the developments of the company. This way, you are able to foresee possible gains or losses that will guide you in making sound and wise investment decisions.

Other references:

• Stock Trading 101: Guide and Tutorial to Stocks
  
• Other stock trading articles in PMT
• Discussion Forum on Stock Trading

Note: This is the second of several parts of Pinoy Money Talk’s primer on how to earn from trading and investing in the stock market, particularly the Philippine stock market.

Article source: Philippine Stock Exchange. Photo Credits: FreeImages.co.uk