how do shares work exactly?

farmer95

Newbie
4 0
Hi guys, very new to the investing scene and just trying to wrap my head around something.

I'm looking at a investment opportunity one of my workmates has put me on too. But im just trying to understand how much i can potentially make.

What im trying to figure out -

If i buy a 1 share for say $40 then it goes up to $60 and i sell it, does that mean iv'e made $20 profit? The reason im asking is because my workfriend said this isn't how stocks work but my brain couldn't understand how he was explaining it and i didn't want to re ask and look stupid lol.

sorry if this is a very dumb question, just looking for some clarification.

Thanks guys.
 

tomorton

Legendary member
7,557 1,032
Basically you're right - buy at 40, sell at 60, make a profit of 20 per share. But from that you have to deduct the broker's fees for carrying out the transaction for you (you can only access the shares market using a broker): should not be too much these days. Also you might have to pay tax on the 20 profit, depends on the tax laws in the jurisdiction where you live.

But also you have to allow for the spread - you might be able to buy a $40 share at $40.50, and maybe you can sell it at $39.50, so the spread is $1 per share. $40 is the mid-price, just short-hand for the share's price, its not a true quotation for buyers and sellers.

So now you see your share has to rise by more than $20 to make $20 per profit.

Some companies (NOT all) pay you a dividend for owning their shares. So maybe you'll automatically $2 per year per share dividend.

But the most important question is what do you do if the share you bought at 40 goes down to 36? Or 35? Or 20? Or 4?
 

timsk

Legendary member
7,122 1,898
. . . I'm looking at a investment opportunity one of my workmates has put me on too. But im just trying to understand how much i can potentially make. . .
Hi farmer95,
Welcome to T2W.

As Tom rightly implies, don't worry about how much you could make, instead, put 99% of your time, energy and focus into much you could lose. That this 'opportunity' comes via a workmate usually means a start up company or a penny stock that is set to move dramatically in a very short space of time. It almost always doesn't happen and the people who jump on them usually lose most or all of their money. So, only 'invest' with money you can afford to lose and under no circumstances use money that you need for mortgage payments, rent, food or other day-to-day living expenses. Make sure you're not being lured into either a boiler room scam or a Ponzi scheme - as both pray on people who have little or no understanding of the stock market. Caveat emptor. In the meantime, this will explain the basics: Essentials of Stocks.
Tim.
 
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counter_violent

Legendary member
9,795 2,517
Hi guys, very new to the investing scene and just trying to wrap my head around something.

I'm looking at a investment opportunity one of my workmates has put me on too. But im just trying to understand how much i can potentially make.

What im trying to figure out -

If i buy a 1 share for say $40 then it goes up to $60 and i sell it, does that mean iv'e made $20 profit? The reason im asking is because my workfriend said this isn't how stocks work but my brain couldn't understand how he was explaining it and i didn't want to re ask and look stupid lol.

sorry if this is a very dumb question, just looking for some clarification.

Thanks guys.
As Timsk has pointed out. Do not get involved in penny shares as a way of investing.
If you are serious about investing, then proven dividend payout year on year is the way to go. Share price increase is less important and secondary to dividend payout, which basically means that your money is working for you.
 

farmer95

Newbie
4 0
how exactly do dividend payments work? For instance this is how I think it works. Say a share price is $2.50 and the dividend payout is 0.10c. If i invest $500 = 200 shares 200shares x 0.10c dividend payout = $20? That's how i understand it, but i could be completely wrong. I mean i understand it would be more in depth then my example but would this just be the basic jist of things?
 

tomorton

Legendary member
7,557 1,032
how exactly do dividend payments work? For instance this is how I think it works. Say a share price is $2.50 and the dividend payout is 0.10c. If i invest $500 = 200 shares 200shares x 0.10c dividend payout = $20? That's how i understand it, but i could be completely wrong. I mean i understand it would be more in depth then my example but would this just be the basic jist of things?

Yes that's about it. Sometimes you will be encouraged to re-invest the dividend into moire shares of the same company and I suspect you might get a discount on their price at that point, rather than buying them on the open market: this can be a good value way to increase your holding though it leads towards a less diverse portfolio of shares.
 

farmer95

Newbie
4 0
Yes that's about it. Sometimes you will be encouraged to re-invest the dividend into moire shares of the same company and I suspect you might get a discount on their price at that point, rather than buying them on the open market: this can be a good value way to increase your holding though it leads towards a less diverse portfolio of shares.
So if a company pays a dividend say 4 times in a year, is the "0.10c" dividend divided by 4? So 4 dividend payments of 0.025c totaling 0.10c for the year? Or is it 0.10c dividend payment 4 times a year?
 

tomorton

Legendary member
7,557 1,032
So if a company pays a dividend say 4 times in a year, is the "0.10c" dividend divided by 4? So 4 dividend payments of 0.025c totaling 0.10c for the year? Or is it 0.10c dividend payment 4 times a year?

The dividend and the number of payments per year are set by the company, its their decision how much they pay from zero upwards and whether they want to change it up or down next time round. No doubt many other companies will follow different policies.

Be aware of the date on which you must be a shareholder in order to qualify for the divided. Notice too what happens to the share price when the dividend is paid out.
 

Akinozragore

Member
95 6
Note, that your broker may take spread fees or comission to open the deal, so you will actually earn less. Another point to consider is how much will you withdraw. You should remember, that some (not all) brokers take comission for withdrawing money and you should mind this fact too. I saw that some people told about dividends, but never rely on such payments, as company may decide not to pay them in some periods to reinvest them. To know what you will earn exactly, you should have a strong knowladge of all fees deducted by your broker, so pay attention and time to ask broker's support team about all comissions, spreads and fees, as there may be some fees, that you even hadn't notice.
 

Adoralmeena

Junior member
38 1
Earning on stocks is a great way to invest your money, and it opens up huge opportunities. You have so many ways to make it profitable. You can invest in well-known companies that are definitely in the top. You can try to buy stocks of young companies, which cost very little so far, so you can do it with less investment. It seems to me that this way of investing is one of the most actual ways of passive earning. Although I wouldn't give up detailed analysis or even cooperation with a specialist who will help you to calculate the total profit and tell you when and how to invest in such a way as to get the most out of it.
 

Malordana

Junior member
36 1
Each trade is terminated with a profit or loss, and all calculations are automatically performed by the trading platform server. But it's useful to know the principle by which these calculations take place. You should pay attention to three things: the volume of the position, quotes of the asset and the direction of the transaction (buying/selling). If, according to the calculations, the price of a financial asset will grow, you should open a deal to buy it If according to the forecasts the price of the asset will fall, in this case will be opened a deal on selling the asset. Your profit is the difference between the price at which you bought or sold the selected asset and its price at the moment of closing the transaction minus the spread and/or broker's commission.
 

Sharim

Junior member
24 3
It's easy enough to do. The difficulty on the stock exchange is not in mathematical calculation. For example, you bought a pair of euro-dollars at $1.10 per euro. If the price rises to 1.11 dollars per euro, you will get a profit equal to 100 dollars if you trade with 0.1 lot. Also, don't forget to calculate the brokers fees. It's very simple, just look at the schedule and calculate, it's already been given as a rule. As for the profitability of trading in the pyramidal way - everything is a bit more complicated. If you initiate transactions one by one, set stop-losses at the break-even level, the calculation of possible profit will be somewhat complicated. However, it doesn't make any difference how much you will earn. Let this amount be more or less, the important thing is that you will get an profit, not a loss. This is what many traders forget, never chase a specific "profit", your goal isn't to get a loss from a trade. Any outcome other than a loss is considered to be win.
 

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