Hey guys! Today is Friday, the last day of “Business and Tech” week. A good portion of what I know about stocks or the financial market, I know because of Billions. Billions is a Netflix show that follows Chris Rhoades, a ruthless US attorney, and Bobby “Axe” Axelrod, a hedge fund manager, as they constantly “fight” each other in the financial market. A must watch.
Billions introduced me to so much about financial markets. I learnt how the financial markets work and I was introduced to a lot of interesting terms. I had to do a lot of reading when I watched the first season of that show.
Anyway, today, in the simplest way possible, I’m going to explain how people make money on the stock markets.
A financial market is a place where people buy or sell stocks, bonds etc. That’s it. You’ve probably heard of “Wall Street”. When you hear people talking about Wall Street, they are probably talking about financial markets. Unless they are reviewing the movie, “The Wolf of Wall Street”.
There are three different ways to make money on the stock market. “Buy low- sell high”, short-selling and collecting dividends. The most popular of the three is using the buy low-sell high technique.
Buy low-sell high
The buy low-sell high technique means just that you sell stock shares at a higher price than you paid for it. For example, buy a stock at $20 dollars, and sell it when the price goes up at say $40 dollars then you would have made a profit of $20. There are different reasons why that would be possible one of them being a major shareholder selling his or her position or stock. Sometimes, the selling of this position drives down the share price. When that happens, it’s a good time to buy stock. Once the sell is over, the prices usually go back up and you could then sell your position to those interested. You buy low and then sell high. That’s just one example.
You Can Also Read: Woman Owned Small Zambian Businesses
Short-selling is the reverse or opposite of the one mentioned above. Short-selling occurs when you borrow shares of stock and then sell them on the market. Then, if the price drops, you buy the shares back and return them to the owner. Short-selling is basically betting that the price of the stock drops. The thing about bets though, is that winning is not guaranteed.
Simply put, say I borrow shares from you. I then go ahead and sell them on the market for $30 and hold on to the cash from the sale. After that, I buy the stock share back at a lower price (when the price goes down), for example at $20 dollars and give it back to you. At the end of that, I would have made a $10 profit. That’s how short selling works.
Is it the best option, I don’t think so. It could go either way. If it so happens that after I sell the stock on the market, the price doesn’t drop but it increases instead, I would have to buy the share stock back at a higher price. If I sold it at $30 and the price goes up to $40, I make a $10 loss because I have to buy the stock back and return it to you. One of the worst things that could happen when short-selling is the price of the stock or share going up instead of down.
The GameStop saga is a good example of what short-selling is and how it could potentially go wrong.
The third way to make money is by collecting dividends. A dividend is defined as “a sum of money paid regularly (typically annually) by a company to its shareholders out of it’s profits (or reserves).”
Simply put, if you are a shareholder in a company, you can receive part of the company’s profit, based on the size of your shares. Sometimes they pay in cash and other times you may receive additional shares of stock.
Another thing I learnt from Billions is, if you’re going to get into the financial markets or invest in stocks, keep your ears to the ground and know what’s going on around you and around the world. That helps to determine what the next move is. In any case, it makes sense to be interested in where you put your money. Lastly, the hedge funds control everything but this is a story for another day.
This is a simple summary of how to make money in the stock market according to what I understood from a Netflix Show and according to other things I’ve read in the past. I highly recommend watching Billions if you haven’t already.
Do you understand how the stock market works? Have you watched Billions? Let me know in the comments!
Thanks for reading!
Hey guys! Today is day 14 of the Afrobloggers WinterABC 2021 challenge. This week was about Business and Tech. Usually on Friday, I take you back to Zambia and introduce you to something Zambian. Given that it is Business and tech week, I was going to prepare a list of Zambian businesses you could buy from but I recently shared woman owned small Zambian businesses. So you can read that instead.
Today, I decided to explain how to make money on the stock market as easily as possible. I also made a lot of reference to a show I watched on Netflix called Billions.
Follow the blog to keep up with all my posts for this challenge.
Find all the posts for the WinterABC 2021 here!