I recently started to follow the stock market. It’s amazing how the market fluctuates day after day. A lot of the numbers didn’t make any sense until I read a couple of books visited financial web sites and watched business news on the TV.
Soon I found out that basically there are two types of investors, passive and active. Most of the passive investors let someone else manage their money and don’t really care about the market’s daily, weekly even monthly movements. Sometimes they don’t even know what exactly they have in their portfolio.
The active investors closely follow the market’s every movement and they frequently buy and sell securities based on the market conditions. Successful active investors know exactly what they have.
So how much money can you make? Passive investors make less money. They usually make money when the market is in an uptrend and they lose money when the market is in the downtrend. A successful passive investor can make 5-10 % a year.
An active investor can also make money when the market is in a downtrend by what is called shorting stocks. Although shorting stocks is risky, but in a downtrend you can make money faster then in an uptrend. An active investor makes about 10-15% a year.
There are also options which are derivatives of securities such as stocks. The price movement of options is not as simple as it is for the underlying stocks. Options which are basically contracts also expire, so after a certain time they can be worthless. Options are risky but they are highly leveraged. For example a 1% price movement of the underlying can result in a 15-20% price increase in the option’s value. With options it’s possible to make 100% profit in less then a week.
If you want to start to invest it’s best to get familiar with stocks first and a couple of years later move on to options trading. No matter what you trade, you can’t control how much money you are going to make but you can control how much money you lose.
