Stock Trading - Side Hustle Review
Many people have become billionaires with the help of the stock market. There are people who started with little to no money but became rich by investing in stock market, because this is the only way one person can make money while sleeping.
So, let’s understand how you can make money by trading in stocks and shares: there are two ways you can earn by investing in stocks - by dividend or by capital appreciation. Heavy words! Do not worry, let’s discuss the meaning of these two words.
DIVIDEND AND CAPITAL APPRECIATION
Dividend is like interest income. The company will pay a fixed percentage of face value of the shares you have bought. Say, you have purchased a 1,000 shares with face value of $10 and company announces they will pay dividend of 2%. Then you will receive dividend of $ 200 for owning the 1,000 shares.
Capital appreciation means when you have bought 1,000 share of $10 each and the same share after a period of time is trading in stock market at $ 12. Then you will earn profit of $200, if you sell your shares at that time.
Now that you understand how to make money with stock trading, let’s understand how you can use this method to earn money as a side hustle.
INVESTING vs TRADING
Investing means buying stock and holding stocks for a long period of time, that are expected to gradually build wealth over a long period, say, years or even decades. People use fundamental analysis to pick stocks that have potential to grow in future. The benefit of trading is that they you can earn dividend while holding the stocks and earn capital appreciation.
Average price of one share of apple in the year 2000 was $0.69 and in the year 2022 it is $158.57. If you would have bough 100 shares, your current profit would be $ 15,775.81. Great right! This is how Warren Buffet became a billionaire.
Things to keep in mind before investing:
Review your needs and goals – First find out what is your financial goals, keeping your goals and considering our risk appetite while investing is very important
Consider how long you want to continue a particular investment - Every investment you make will be related to your goals. Say, you have a financial requirement in 2 years – plan your investment in such a manner that your requirement is made.
Diversify – Dealing in stock market always comes with certain risk. But you can always balance between risk and return by investing into different investment types and sectors, whose prices generally don't move in the same direction.
Check the charges – You will have check the charges your broker will charge for each transaction and subscription fees for holding an account with the broker.
Review your investments periodically - It is important for you to know how your investments are performing, thus keeping a check on your investment becomes really important.
Investing seems great but, you want something, that will meet your current requirement – then try trading!
Trading involves frequent transactions such as buying and selling of stocks in short term, so that you can cook the profits from short-term movements in the prices of these shares. The period of holding can be months, weeks or a day. To do stock trading one needs to learn technical analysis. Trading can be highly rewarding. But it comes with higher risk than investing. Let’s understand few points to keep in mind while trading to maximize your returns and minimize your losses.
Do your research: Before doing any short of trading do your research, otherwise it will be like gambling and you will lose your hard earned money.
Start small: Avoid trading your entire savings in your first few trades. Start with smaller sums of money – say 5% and then gradually increase with experience - 10%, 20% and so on.
Analyze, learn and overcome your slips: Keep that in mind there will times you will not make profit. Constantly analyze what you have done and how you will can make more profit.
There is no minimum requirement of capital to start trading/investing in stocks but if you have a higher budget, it helps you to do more transactions.
You want to know how much you will make by trading?
Let’s consider a strategy for day trading stocks in which the maximum risk is $0.04 and the target is $0.06, yielding a risk / reward of 1-to-1.5. A trader with $10,000 decides that their maximum risk per trade is $100. Therefore, 2,500 shares on each trade ($100/$0.04) will keep the risk within the $100 cap (not including commissions).
Here’s how such a trading strategy might play out:
30 trades are profitable: 30 × $0.06 × 2,500 shares = $4,500.
5 trades are losers: 5 × $0.04 × 2,500 shares = ($500).
The gross profit is $4,500 - $,500 = $4,000.
If commissions are $30 per trade, the profit is $2,950, or $4,000 - ($30 × 35 trades).
Your earning shall be depended on amount of capital you have and how many trades you have executed.
You will hear many success stories, people earning a high income by trading in stocks. If you decide to give side hustle a shot – it will give you the freedom to set your own schedule and chances might be you will be able to start your journey to be financially independent. But, you will have to keep in mind the risk associated with, if you improve your fundamental analysis skill and technical analysis skills, you surely can earn decent amount as a side hustle.